When The Banks Hate Something

It means you should love it:

The nation's largest banks haven't yet seen a proposal that is designed to help resolve mortgage-servicing errors that affected troubled borrowers. But industry executives are bristling at the administration's new approach, disagreeing that principal reductions will help borrowers and, in turn, the broader housing market.

Though a unified settlement is uncertain and would have to appease regulators, banks and state attorneys general, some officials are pushing for banks to pay more than $20 billion in civil fines or to fund a comparable amount of loan modifications for distressed borrowers.

[...]

Any settlement that includes loan write-downs would require banks such as Bank of America Corp., Wells Fargo & Co. and J.P. Morgan Chase Co. to complete modifications within one year from the settlement's date, said people familiar with the matter. Banks could face additional fines if they don't comply with the terms of the settlement, and they would have to hire independent auditors to provide monthly updates on their progress and compliance with the terms.

And when bank executives say that principal reductions won't help borrowers or the broader housing market, it means that principal reductions will immensely benefit both borrowers and the broader housing market. Principal values are one of the primary functions of a monthly mortgage payment, and one of the significant reasons that the housing market is so distressed is that principal values remain at housing-bubble levels, while actual housing values have plummeted. So these unnamed executives are just lying and covering their own asses. In my slightly uninformed opinion, mass principal reductions across the board (without any regard for whether or not borrowers were unscrupulous or irresponsible) would have the single greatest economic benefit on the housing market. Distressed homeowners would be able to afford their payments again, folks could actually sell their damned homes and be free to move about the country (which is a net benefit for the labor force), and we would actually be doing something proactive about the broken housing market, rather than taking the inexplicable current policy of "wait and see." 


These poor banksters are just getting their fee-fees in a bind because principal reductions would require some sort of adverse financial impact on the bank itself, and none of these delicate flowers wants to be called a 'zero' in the bank cafeteria as a result. $20 billion is also a drop in the bucket and a laughable figure compared to the magnitude of the overall mortgage/foreclosure problem ($744 billion as quoted by the bankster in the article). There is also this:

Given the banks' track record in reworking loans, some attorneys who represent borrowers in foreclosure question whether the administration's proposal could work. "Requiring banks to eat the loss, and at the same time allowing them to administer the program, is a recipe for a program that will not do anything except raise people's expectations and frustrate them," said Gloria Einstein, an attorney at Jacksonville Legal Aid Inc. She said an independent third party should administer the program.

The administration is just colossally inept and stupid if they honestly allow the banks to administer this program. It would signify that they have learned absolutely nothing from the disaster that is HAMP. But given the nature of how any change in the American political system is always incremental and arduously slow, this is a heartening step in the right direction. Nothing will be accomplished until the banks are forced to have a stake in unwinding the mortgage/foreclosure disaster, and until then, the economic recovery will continue to be stifled.