The Financial Times reports US Banks in 'Cash for Keys' Foreclosure Talks

The five biggest US mortgage servicers were told this week at a private meeting with regulators to consider paying delinquent borrowers up to $21,000 each as part of a broader settlement of the foreclosure crisis.



People who attended the meeting, chaired by the Federal Deposit Insurance Corporation on Monday, said the industry-wide “cash for keys” program would involve the biggest servicers, led by Bank of America paying borrowers as an incentive to leave their homes.



Banks would pay borrowers who are more than 90 days behind on mortgage payments up to $1,000 to seek independent financial advice and up to $20,000 in cash as a “fresh start” payment towards living costs in a new home. They would have to vacate their properties quickly and leave them in good condition.



Sheila Bair, FDIC chairman, raised the idea but people involved said it was not an official government proposal and was rejected strongly by some of the banks.



The Department of Justice; state attorneys-general; banking regulators, including the FDIC; the Treasury; and the new Consumer Financial Protection Bureau are among the agencies trying to come to a settlement with the industry. A combined penalty of about $20 billion has been discussed, with one idea to use the money to write down the outstanding debt of struggling homeowners.



However, prospects for a single “mega settlement” have worsened because officials disagree on the level of penalty and whether money raised in fines should be used for a principal writedown. The banking regulators, who do not agree among themselves, are nonetheless keen to come to an agreement quickly.



One way through the gridlock, which has been discussed among officials, is giving the servicers a menu of options for settlement, which might include principal writedown or a “cash for keys” scheme.

No Winnable Actions





Obama's $20 Billion Civil Fine Scheme

How Far would the Money Go?



Let's assume this proposal is adopted. How many would benefit? The answer of course depends on the criteria. However, but the goal seems to be to help those in distress, so let's use those currently in distress as a starting point.



Total Non-Current and Delinquent Loans







The above chart and following stats from the LPS Mortgage Monitor, January Observations



As of December 2010 there were 2,117,845 90+ day delinquent loans.

As of December 2010 there were 2,555,799 30-60 day delinquent loans.

As of December 2010 there were 2,195,940 in foreclosure.

As of December 2010 there were 6,869,584 in total non-current loans

Those in foreclosure are clearly too far gone to help. If we take $20 billion and spread it out over the rest, we can calculate mortgage principal reductions several ways.



$20 billion divided by 2,555,799 would give everyone 30-60 days late a principal reduction of $7,825

$20 billion divided by 2,118,845 would give everyone 90+ days late a principal reduction of $9,439

$20 billion divided by both groups would give everyone a principal reduction of $4,278

This is supposed to help?



By the way, history suggests once someone gets to 90+ days late, the situation is hopeless. Even if the $20 billion was entirely thrown at those 30-60 days late, we are talking about principal reductions of under $8,000.

Doing Nothing Not a Solution

Kicking the Can

In Prison for Taking a Liar Loan

Rolling List of High Profile Fraud Targets

October 10, 2010

April 29, 2010

April 16, 2010

March 2, 2010

January 31, 2010

January 28, 2010

January 26, 2010

January 07, 2010

October 20, 2009

July 17, 2009

June 26, 2009

April 24, 2009