STOCK MARKET WATCH - Friday, 17 February 2012

[Demeter]

14. Fun With Numbers: Foreclosure Fraud Settlement Figures Tough to Add Up

http://news.firedoglake.com/2012/02/14/fun-with-numbers-foreclosure-fraud-settlement-figures-tough-to-add-up/

Almost a week after the announcement of a foreclosure fraud settlement, experts are trying to determine what’s in it, given the absence of a term sheet. This chart at analyst SNL’s site shows one problem: it has a total settlement listed at $25 billion, but just California and Florida’s numbers add up to $26.4 billion. The accounting, as we discussed, goes this way:

The accounting in the settlement is somewhat confusing. The much-quoted $25 billion figure includes $17 billion that banks must spend on a variety of programs to help beleaguered borrowers. Banks will receive credits for each dollar spent. “Sometimes they get a dollar for dollar credit, sometimes they get 45 cents on the dollar, sometimes they get 10 cents on the dollar,” Iowa Attorney General Tom Miller explained during a press conference. “The benefit to homeowners on the full dollar amount is $32 billion.” In addition, the deal includes $3 billion dedicated to refinancing loans and $5 billion to be paid to federal and state governments.

Using these figures, the settlement totals closer to $40 billion. California will receive up to $18 billion — a large proportion of the overall settlement and far more than the estimated $4 billion in relief that the state was set to receive when California Attorney General Kamala Harris walked away from negotiations in September 2011.

The New York Times, in a beat sweetener on Harris today, praise the Attorney General for getting maximum value for California.

But this is not as cut and dried as Harris or Miller make it, and the giveaway is the line that “up to” the various dollar amounts will be collected. We cannot possibly know what the $17 billion in short sales and principal reduction will end up as in real value. It’s largely at the discretion of the banks to determine what types of principal reduction they will undertake. They get certain “credits” for certain types of write-downs, and I don’t believe they have even formulated a strategy as to what write-downs to target. Moreover, media reports have alternately said that banks will write down a “substantial” amount on private-label mortgage-backed securities loans, or that they have no authority to do so without the consent of the investors and will thus opt against it. We know that PLS loans will get less credit – around 40 cents on the dollar – but we do not have a precise menu about types of principal reductions and the associated credits they will rate...