A sweeping settlement to end the foreclosure fiasco plaguing the US housing market can’t even get its toe in the door.
The deal proposed by federal regulators and state attorneys general in a 27-page draft settlement distributed to the nation’s five largest mortgage lenders last week is a “non-starter,” sources told The Post.
One bank official said that the draft, if implemented in its current form, would force many of the nation’s banks to stop underwriting mortgages altogether because they wouldn’t be able to manage the new costs of servicing home loans under the proposed agreement.
“This is the government trying to change your business so that you cannot make a profit,” said one banking executive. “Every regulator and everyone in Washington knows that this current settlement is a total non-starter.”
Regulators and bank representatives may convene in Washington as early as next week in an effort to hash out many of the most vexing issues that threaten to derail a deal, according to a source familiar with the situation.
Sources said the negotiations could take months, given how far apart the parties are. Under the proposed terms, the banks argue that there are too many added costs and restrictions on fees that they would be allowed to charge customers.
Industry officials also said that the cost of modifying millions of mortgages would be an expensive one and would only encourage some homeowners to become deadbeats.
“If we’re not going to be able to make money on mortgages, we’ll get out of it,” said an official at a major bank. “You think it’s a threat [to get out of mortgages]? It’s a reality.”
The mortgage melee comes as regulators and all 50 state attorneys general press major mortgage servicers, including Citigroup, Bank of America, JPMorgan Chase and Wells Fargo, to shell out as much as $20 billion to settle accusations that they botched millions of foreclosure proceedings.
Settlement talks between regulators and banks come as the Obama administration pushes mortgage servicers to include modifications to millions of loans as a part of any settlement in a bid to jump-start the housing market.
Still, industry experts believe that at least some of the bank’s complaints amount to posturing.
“If the cost for mortgage servicers increases, it doesn’t end life as we know it,” said Karen Shaw Petrou, managing partner at Federal Financial Analytics.
“It is in the interest of the banks, the interest of homeowners, the interest of regulators and the interest of the economy to have a foreclosure settlement, to fix the problems and to put these issues behind us,” said Michael Barr, law professor at University of Michigan and former assistant Treasury secretary.