The Recent Mortgage Settlement

The Los Angeles Times has an article by Michael Hiltzik that casts the recent settlement between several major U.S. banks and 49 state attorneys general in a pessimistic and cynical light. Among his main points: (1) The supposed $25B price tag is misleading, because it is comprised mostly of a rosy estimate of future principal write-downs and interest-rate reductions for non-foreclosed mortgagors; (2) the states will receive only approximately $5B in direct payouts from the deal; (3) of the two million owners who have lost homes to foreclosure since 2008, only about 750,000 will receive compensation– at a grand total of $2,000 each; and (4) a separate suit by the federal Office of Comptroller of the Currency has been quietly settled for nothing, so long as the defendant banks follow through with their agreements in the main settlement with the states.

My sense, after hearing a passing summary of the deal on N.P.R., was that the settlement was very modest. Reading this article, and a few other news reports, has not changed my mind. One bit of a silver lining: Attorney General Schneiderman’s MERS action, filed last week in Brooklyn, will go forward, in spite of this settlement– and so will a number of other state actions. So, this agreement may turn out to be just one piece of a larger puzzle.

Subprimes into Land Banks

Here’s an interesting proposal for all of the disused properties that have been tied up in the MERS mess: Use eminent domain to assemble them into land banks for future equitable purposes. I suspect, at the end of the day, the real banks will find a way to hang on to the bulk of what’s in their portfolios. On the other hand, the sheer scale of those portfolios might be more than they want to fight for. A couple of years ago, I had a summer job where I helped to implement HUD affordable housing programs in Newark. At the time, there were blocks in the Clinton Hill and Roseville sections where nearly half the properties were in some sort of bank-owned limbo. It’s easy to forget, when you’re in the suburbs, just how much urban land investment has been wiped out in the last few years. The dearth of affordable housing in regions like the Northeast and California might be addressed if even a portion of this land could be deeded to high-density, limited-equity cooperatives.