April, 2012

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Page 53 of 82

SERVICING "You may have noticed already that these numbers don't quite add up: How do four states get nearly $30 billion out of a $25 billion settlement? Call it the new math." — Tom Miller, Iowa Attorney General Who really pays what is to be determined by a state-federal oversight committee, led by Joseph Smith, North Carolina's ex-bank commissioner. As a result, SNL estimates the actual settlement will total around $40 billion. The kicker: With the money they receive directly, the states might even fund programs unrelated to mortgage markets, like infrastructure projects, Ketterer said. Homeowners, too, will ben- efit—especially vets and service members. Besides the obvious hazards to life and limb, serving in the military comes with a whole host of housing-related challenges—constant moves and handling loan payments while overseas, for example. Under the terms of the settlement, com- pensation will go quickly to vets who are in the market or who need a short sale or repayment of excessive interest charges. To keep favorable VA loan programs on solid ground, $10 million is being set aside. For the rest of borrowers, there are plenty of potential upsides. The deal sets aside $17 billion in relief, including $10 billion for principal reductions, $3 billion for refinancing, and $1.5 billion to compensate borrowers who were foreclosed on between 2008 and 2011. Beneficiaries include home- owners like Lynn Szymoniak, a South Florida lawyer who will get $18 million after suing over the robosigned filings on the 2009 foreclosure of her condo. Speaking in mid-March, U.S. Attorney William Nettles told Bloomberg that settlements like Szymoniak's were "a positive step toward righting the wrongs committed by the banks during the mortgage meltdown." The mechanisms depend largely on what state borrowers are in, but eligible homeowners are supposed to be notified by mail that they can receive some of these benefits; there's a good chance that by the time you read this, Smith's settlement monitor- ing committee may have already contacted some borrowers. On top of all that, another $2.5 billion is being set aside for public funds, housing counselors, and legal aid. That means HUD- certified nonprofits, like the Urban League and the National Consumer Law Center, will be able to vie for valuable grants, as- suming they're in states that use the money to set up appropriate programs. The Losers S o everybody wins, right? Well, not exactly. For starters, servicers aren't off the hook. The basis of the agreement was the banks' failure to prevent robosign- ing and servicer misconduct, but it doesn't relieve them of criminal liability or a host of civil claims. State cases against the rating agencies and bid-rigging in the mu- nicipal bond market persist, and, the website set up to handle related issues, notes, "Claims and investigations against MERS and how Wall Street packaged mort- gages into securities also continue." Not only that, but with a shadow inventory and future foreclosures looming, the settle- ment could be a drop in the bucket compared to write-downs that await banks and investors. And though the deal made an honest attempt to link banks' individual responsibility for wrongdoing with the amounts they paid out, that link is tenu- ous, at best. Why should second- lien holders pay for the sins of someone up the chain? "Unfortunately the settlement will also potentially draw billions of dollars from those not a party to the settlement, including public institutions, unions, and individual investors to fund the remedy. It is unfair to settle claims against the robosigners with other people's funds," the Association of Mortgage Investors said in a statement blast- ing the agreement. "While we request that it not be done, at a minimum, we request that a mean- ingful cap be placed on the dollar THE M REPORT | 53 ORIGINATION SERVICING ANALYTICS SECONDARY MARKET

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