Advancing a Free Society

Mortgage Mess

Friday, August 5, 2011

On March 4, 2011, the New York Times described a settlement ("settlement") proposed by a consortium of state attorneys general (AGs) to large mortgage servicers. The claims to be settled reportedly relate to failures to follow existing procedural rules relating to the foreclosure process. The settlement would make dramatic changes in those rules, and reportedly require a mortgage loan principal reduction program of $20 to $25 billion. Negotiations over the settlement are continuing despite servicers reaching an agreement with bank regulators on penalties and procedural changes related to foreclosure processing deficiencies. These negotiations continue to create uncertainty in the housing market and have the potential to stall foreclosure proceedings nationwide. The purpose of this essay is to review how such a settlement would affect the housing market and the larger economy.

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