California Attorney General Agrees to Mortgage Meltdown National Mortgage Settlement of $18 Billion

Okay, here comes the latest window dressing of the day and a settlement that may force what the banks should have done voluntarily and that is give principle reductions to California homeowners.  Here is a link to the mortgage settlement with the California Attorney General.  Here are a few snippets from the Attorney General on the settlement:

-    ”California families will finally see substantial relief after experiencing so much pain from the mortgage crisis,” said Attorney General Harris. “Hundreds of thousands of homeowners will directly benefit from this California commitment.”

-     “This outcome is the result of an insistence that California receive a fair deal commensurate with the harm done here. We insisted on homeowner relief for Californians and demanded enforceability so homeowners actually see a benefit that will allow them to stay in their homes, and preserved our ability to investigate banker crime and predatory lending,” continued Harris.

Here is the part of the press release that concerns me:

As part of the separate California guarantee, banks must enact a minimum of $12 billion in principal reductions for California homeowners. Failure to achieve this minimum level of reductions will result in substantial cash payments of up to $800 million that the banks will have to pay to the state.

So apparently 12 billion is earmarked for homeowner principal reduction, but if, just if, the banks don’t give that amount then they pay 800 million (a much small amount) TO THE STATE?  Is this a back door way to give California a BAILOUT??  Somebody please talk to me here?  Am I missing something?  Now I have not seen any draft of the settlement agreement as this settlement just came out, but something seems amiss with a clause like this.

The next issue is WHO GETS THE PRINCIPAL REDUCTION?  WHAT IS THE CRITERIA?  WILL THE IMPLEMENTATION BE FAIR?  HOW WILL THIS WORK?

Well, according to the press release not all counties will be included in the principal reduction program (okay, then who gets it)?  Here is what the press release says:

County-specific payments are based on the number of homeowners and the depth of the foreclosure crisis. It is estimated that homeowners in the following counties will accrue the following level of benefits over the three-year life of the commitment.
- Los Angeles: $3.92 billion
- Riverside: $1.59 billion
- San Bernardino: $1.13 billion
- Sacramento: $820 million
- Stanislaus County: $368 million

Here are other details made public (and my comments in bold):

The financial benefits of this historic agreement extend to homeowners whose loans are owned or serviced by one of the five largest mortgage lenders.

HARRIS SAID: ”I will continue to fight for principal reductions for the approximately 60 percent of California homeowners whose loans are owned by Fannie Mae and Freddie Mac,” Attorney General Harris added.

Benefits include:
- More than $12 billion is guaranteed to reduce the principal on loans or offer short sales to approximately 250,000 California homeowners who are underwater on their loans and behind or almost behind in their payments.

Supposedly there will be major relief in the first year of the program.  
- $849 million is estimated to be dedicated to refinancing the loans of 28,000 homeowners who are current on their payments but underwater on their loans.

So how will they decide who gets to reap the benefit of an underwater refi?  This money would go fast.
- $279 million will be dedicated to offering restitution to approximately 140,000 California homeowners who were foreclosed upon between 2008 and December 31, 2011.

Who qualifies for restitution?  What is the criteria?  How much will each person get?  What type of violations must you have?
- $1.1 billion is estimated to be distributed to homeowners for unemployed payment forbearance and transition assistance as well as to communities to repair the blight and devastation left by waves of foreclosures, targeted at 16,000 recent foreclosures.
- $3.5 billion will be dedicated to relieving 32,000 homeowners of unpaid balances remaining when their homes are foreclosed.

What?  32,000 homeowners will have their mortgages cancelled?  Is that what I am hearing?  Is this a lottery?
- $430 million in costs, fees and penalty payments.

I suppose this goes to the state and is badly needed.

OH, AND THE SETTLEMENT CREATES 42 MORE JOBS:

California will expand its Mortgage Fraud Strike Force, adding to the more than 42 members already working on the team.

The press release (video) is scheduled for 11:00 a/m this morning and hopefully you can see it here.

We will keep an eye on this and see how it plays out.  Hopefully this is not just more window dressing.