White House works on settlement plan for mortgage mess
A Foreclosure sign is seen in front of a home in Miami Beach, Fla.
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STEVE CHIOTAKIS: The Republican-led House Financial Services Committee will likely vote next week to eliminate White House programs aimed at helping struggling homeowners. That announcement comes just as the Wall Street Journal reports the Obama administration is trying another effort to alleviate the mortgage mess. It's a settlement the White House proposes. Asking banks to trim $20 billion total from the mortgages of some homeowners who owe more than the home is worth.
And in exchange the government would settle with big banks over botched-up foreclosures.
Nick Timiraos was one of the reporters on today's Journal story, and is with us now from New York. Good morning.
NICK TIMIRAOS: Good morning.
CHIOTAKIS: So how is this plan going to work?
TIMIRAOS: Well it's still very much in flux. It depends on getting a bunch of different regulators and state Attorneys General and federal agencies to agree on a settlement, the broad outlines of which will have banks write down loan principle for borrowers who own more than their homes are worth. And this is part of a settlement for a lot of the mortgage misuses that banks have had over the past six months when it comes to collecting payments and properly foreclosing on folks.
CHIOTAKIS: When you say "write down" you mean reducing the principle on the loan, right?
TIMIRAOS: Exactly, so a number of economists are saying, "Look, you need to reduce the amount of money they owe when you modify their mortgage" so that they're less likely to fall into foreclosure if they run into problems paying their loans.
CHIOTAKIS: If we're talking about reducing how much some mortgage holders will owe, what parties are going to pay into that fund?
TIMIRAOS: Mortgage servicers have dropped the ball at many stages in the process. And therefore these servicers, mostly banks, will have to pay for write downs. And this is different from in the past where the investor that owns the load would have to reduce the principle and take the hit.
CHIOTAKIS: What happens if the White House can't get everyone on board with this plan?
TIMIRAOS: The idea here is that if you have a lot of different agencies doing their own thing, they each come up with their own code of conduct for servicers. They each have their own settlement. It's going to prolong this process, it's going to create more uncertainty for the banks and for the housing market. So the administration's interest here is to get everybody to agree on a number that's large enough to satisfy those agencies and the state Attorneys General and that it's not too large to turn off some of the bank regulators that are worried about having something that overly, or disproportionately large. There's no silver bullet for the housing market. This could help on the margins, but the idea here is that what we've been doing has not worked.
CHIOTAKIS: Nick Timiraos, reporter from the Wall Street Journal joining us from New York. Nick thanks.
TIMIRAOS: Alright, thanks so much.