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Wall Street Journal: Rep. Waters: $20 Billion Settlement Would Be Too Low.

February 25, 2011
In The News

By Nick Timiraos

A top Democrat on the House Financial Services Committee signaled that the broad outlines of a settlement to resolve mortgage-servicer abuses should push for penalties higher than the reported $20 billion figure.

On Thursday, the Journal reported that the Obama administration, federal regulators, and state attorneys general were ironing out broad outlines of a settlement to resolve abuses that first surfaced when foreclosure processes broke down last fall. The settlement could push for banks to write down loan balances for troubled borrowers, and several stakeholders in the talks have pushed for a settlement of more than $20 billion.

Rep. Maxine Waters (D., Calif.) issued a statement on Friday implying that such a figure would be too low.

"Though this figure sounds like a large settlement to those unfamiliar with the scale of the foreclosure crisis, we must remember that over 3 million homes have been lost to foreclosure since 2006," she said in the statement. "This settlement is too small, and will likely have one of two results: either borrowers will receive insignificant principal reductions, or reductions will only be available to a small subset of troubled borrowers."

Ms. Waters also said that any settlement should be contrasted with the one that Bank of America Corp. reached with state attorneys general in 2008 to settle alleged predatory lending abuses on behalf of Countrywide Financial Corp., which it acquired that year. The settlement was valued at $8.6 billion.

She also said that regulators should focus additional attention on potential failures within the transfer of notes during the securitization process that might run afoul of federal tax rules for the treatment of certain mortgage-backed securities.

The banking industry has knocked the Obama administration's nascent proposal, saying that the settlement is too large relative to the size of their abuses and that it is also too small to have any meaningful impact on the housing market.

House Republicans, meanwhile, will advance legislation next week to terminate four housing-aid programs, including the White House's signature Home Affordable Modification Program. Rep. Patrick McHenry (R., N.C.) told the Journal that the Obama administration wouldn't have the authority to compel banks to create additional modification programs.