Cheers for the Foreclosure Settlement

There are cheers for the foreclosure settlement calculating to $25 billion. The step was finalized on 9th February pushing the country beyond the crisis that had kicked off the Great Recession – the worst in decades. The deal was signed with five mega banks and 49 attorneys general as well as representatives of the Department of Justice. It involved comprises between the federal and state governments, the two main political parties and the financial entities of Wall Street. It will give some relief to millions of house owners across America who had been victimized by these wrong doings. It will also be the beginning of a new phase of regulations to control the conduct of mortgage servicers. By the settlement the house owners will get the feeling that justice is being meted out. A good number of borrowers had overreached themselves in taking loans much beyond their means but that does not excuse the servicers for not following the law and being honest not only with the borrowers but also with the government. The settlement takes away from the attorneys general of states the right to following up wrong doings in matters of origination of loans although it allows individuals to bring lawsuits. On top of this the servicers will from henceforth have to abide by a set of new regulations to stop the robo-signing practice; also communicating with the lenders by the borrowers will have to be made easier. The amount of $25 billion is not to be taken lightly – it is a sizeable figure. Many of the house owners will see actual relief when their principals are reduced and refinancing made easier. Tom Miller, the lead figure in the settlement and A.G. of Iowa speaking at a press conference said, “This agreement will eventually made widespread principal reduction commonplace”. The logic is that once the banks see how principal downsizing is effective in preventing future foreclosures they will start doing so voluntarily in bigger numbers. Only Time will prove the truth of Miller’s predictions. The banks will now be able to move forward. The faults of the banks in the past cannot be denied and that they should be punished, but the country needs these very same banks to help kick off the recovery. Ted Gayer of Brookings Institute said that this settlement will “help banks start unlocking the foreclosure process”. The shadow inventory needs to be worked through as the first step towards recovery. The fine print of the settlement has not is yet to be released.