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New Settlement to Alter Mortgage Market

A new mortgage settlement has been announced but will it really help homeowners this time around and how will it alter the mortgage lending landscape?

The new $8.5 billion mortgage settlement struck between 10 mortgage servicers and U.S. regulators is a replacement deal, substituting the failed foreclosure reviews under the last settlement.

In other words, it’s more numbers, but many consider it to simply be a way for big banks to get a free pass for no fulfilling their obligations under the first settlements for the widespread fraud they committed. Many might ask why bother at all, if they never intend to live up to their end of their bargain and there are no real penalties for fraud or taking someone’s home illegally in this country providing you have several billion to buy your way out.

Hopefully some of those who lost their homes to these mortgage lenders unlawfully will be handed significant sums to go out and buy new homes and fuel the housing market. However, details of the settlement show only $3.3 billion will actually be cash. Of that it is expected that 4.8 million borrowers who lost their homes in 2009 and 2010 will receive around $900 each.

Work that math and you’d have to assume the banks made out pretty handsomely with big profits, even if they sold those homes for 50 cents on the dollar, plus write offs and other compensation.

The other $5.2 billion of the new mortgage settlement is to be in the form of more loan modifications and forgiveness of deficiency judgments. We all know that these numbers will likely be worked in the favor of lenders again and these are simply moves that banks would have to make, settlement or not. However, this could be great for real estate investing by creating more deals with larger spreads and increasing the availability of distressed properties for flipping. Still it would be much better if any who did lose their homes illegally had them returned and were appropriately compensated, if that is even possible considering the emotional stress and hardship it put so many through.

However, perhaps the biggest shift to come from this latest settlement news will be more distrust of U.S. lending institutions and a lack of faith in them ever being held accountable for future actions. This has to negatively affect not only their brand image but current and future deposits as well.

So look to those who are working hard to treat their customers the best (and are attracting the most deposits) to lead in mortgage lending in 2013 and beyond…

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