Experts react to the foreclosure settlement

[MrCoffee]

9. Where's the positive in Bernstein's statement?

Here’s what’s unique, useful and potentially important about the settlement: One of the main reasons the measures we’ve tried so far have underwhelmed is because they’ve all been voluntary from the perspective of lenders and servicers. No bank had to play along with HAMP or HARP. They had a choice of whether to respond to the incentives in the programs or not, and often it was “no thanks.” (By the way, that’s why I always liked the cramdown option — moves locus of action from solely being in the lenders’ hands.)

But the five banks named in the settlement must now set up processes to do refis and principal reductions. They don’t have a choice. And that’s a real advance.Who knows, with these processes in place, we can even dare to hope that the $17 billion, which is expected to be leveraged up to about twice that amount (i.e., banks are expected to provide a dollar of foreclosure prevention for $0.50 from the settlement fund) will be testing the waters for a deeper dive into mortgage modifications.”

Where's the positive there?

-Banks set up the processes to do the write-downs and refis. They get $20 billion in funny money to do this, and will finance it through institutional investors and Fannie/Freddie
-Dare to hope that the $17 billion is leveraged up. There's an equally valid chance that we're overpaying. From yet another Prosense link

In terms of the commitment of payments in the form of write-downs, we don’t have a clear counterfactual that allows us to gage how much would have been written down anyhow. We also have the peculiar situation where the banks get to pay the penalty with write-downs of debts to MBS investors.

Again, where's the positive there?