By Mike Colpitts
Homeowners strapped with underwater mortgages or having trouble
The 17 banks and lending institutions lawsuits announced Friday allege misrepresentation and fraud on the banks’ part selling mortgage-backed securities to Freddie Mac and Fannie Mae. Attorneys for the FHFA are suing for damages in excess of a combined total of $105-billion to defray losses the giant government sponsored lenders suffered in the mortgage scandal.
However, negotiations with most of the lenders have already started, according to two highly placed federal sources. Negotiations could include more than just big cash settlements with the lenders. The federal government has been asking lenders through the Obama administration to increase the number of mortgage modifications with homeowners at risk of losing their homes to foreclosure for years.
The lawsuits could represent a turning point for the housing market with the bankers as they try to work negotiations out with the FHFA. Bank of America, for instance, as the nation’s largest bank reportedly has more than $1-trillion in customer assets. The feds are suing BofA for more than $30-billion taking into account both Countrywide Mortgage and Merrill-Lynch acquired by the bank in damages.
BofA could presumably work out an agreement with the government that could reduce the amount the bank would have to pay in damages to the federal government, by increasing the amount it would reduce the principal of mortgages for at risk mortgage borrowers. The agreements would have to be approved by investors, but recognizing a lower loss would be a benefit to investors, making them more likely to accept such a deal.
The same sort of agreements could also be worked out with the other lenders, including JP Morgan Chase, which the government is suing for $33-billion and Citi Group. Agreements would aid homeowners and at least partially reduce the pain for millions of homeowners.
Similar agreements would also help to reduce the huge volume of foreclosures, which is forecast to increase over the coming months by Housing Predictor, reaching a total of 15 million homes through 2015. More than 7.5 million homes have been foreclosed since the crisis started as a result of bankers selling mortgages to anyone who could sign their name.
Some 73 million Americans are homeowners and about two-thirds are mortgage holders, representing a huge voting block for President Barack Obama. With little chance of the unemployment rate being reduced much before the next presidential election, the biggest way Obama could influence voters is through the housing mess.
Official government unemployment averages 9.1% in the U.S. but when you include the underemployed and those who have stopped looking for work the rate is actually much higher. The FHFA, started by the Obama administration to oversee the government’s giant lenders is sitting in a perfect place to negotiate those results and take the pain out of the foreclosure mess for millions of Americans.