The Case-Schiller Home Price Index was released today, and the idea that a housing recovery is on the horizon appears to be premature:
…all three headline composites ended 2011 at new index lows. The national composite fell by 3.8% during the fourth quarter of 2011 and was down 4.0% versus the fourth quarter of 2010. Both the 10- and 20-City Composites fell by 1.1`% in December over November, and posted annual returns of -3.9% and -4.0% versus December 2010, respectively. These are worse than the -3.8% respective annual rates both reported for November. With these latest data, all three composites are at their lowest levels since the housing crisis began in mid-2006.
So the housing market remains mired in the doldrums. What better time, then, to revisit a post I wrote a couple of weeks ago on the national mortgage settlement.
This multi-billion dollar settlement between federal and state officials and the five largest mortgage writing banks was touted as a means of providing not just a little justice for those who were unfairly foreclosed upon, but also to punish the banks for shady business practices and create a monitoring system to ensure they never did it again.
I got a note from the Attorney General’s office asking me to talk about that post, the contention being that one of my sources, the Financial Times, had its facts wrong when it said that the banks would be able to use taxpayer-funded credits from another federal mortgage program — HAMP — to cover the costs of the recent settlement.
Ken Cuccinelli explained to me that this simply isn’t true. In a written statement sent to me before our conversation, the AG’s office framed the matter this way:
There are no taxpayer dollars going toward the settlement obligation. The settling banks can get federal incentive payments for loan modifications if they meet the requirements of the Home Affordable Modification Program, but those payments are deducted from the credit they earn toward the consumer relief requirements under the settlement. Also, this setup only relates to federal component of the settlement, which goes into effect whether the attorney general signed on or not.
A point Cuccinelli was keen to make clear that there is also a state portion of the settlement. The dollars flowing from this portion of the agreement are the ones the General Assembly is currently deciding how to spend (the Senate version of the budget, which failed to pass owing to a Democratic protest over committee assignments, would have allocated the bulk of that $69 million to the reserve fund).
Had Cuccinelli refused to participate in the settlement, Virginia would not have seen a dime of that money. Only one state AG refused to play ball: Oklahoma’s Scott Pruitt. It’s important to note that any Oklahoma homeowners who can prove they were improperly foreclosed upon will still be able to get federal funds. But the state will get nothing…except for Pruitt, who gets to burnish his outsider cred.
But it wasn’t just the state portion of the deal that got Cuccinelli involved. He told me a big reason was to “influence the parts of the settlement over which we had little control” — meaning, the federal portion of the deal.
Cuccinelli and a handful of other state AG’s objected to the original term sheet presented to the banks, charging that the goal of forcing banks to write-down principal balances created undue moral hazard and:
“appears to reach well beyond the scope of our enforcement role, and, in some instances, far exceeds the scope of the misconduct which was the subject of our original investigation.”
The AG said his goal was to try to keep the agreement focused on actual violations of the law, and to make what was an initially terrible set of proposals “less bad.”
Even with this settlement in place, there are no barriers to future lawsuits — or criminal proceedings — against the mortgage lenders, and some AGs are already contemplating their next court cases.
The actual terms of the agreement have not yet been made public, as they must first win court approval.
