Transcript: Press conference Q&A on the $25 billion multi-state mortgage settlement


Transcript of the press conference Q&A on the $25 billion state-federal mortgage settlement: 

Question: “Mr. Attorney General, not to dismiss how hard deal was and the complexity involved, but when you look at the actual average relief on the principal reduction side and on the cash payment to foreclosed homeowners, it’s a bit low. And those homeowners may well ask, if you settle low?”


Iowa Attorney General Tom Miller: 

“I’ve not looked them in the eye and said no. And here’s what I would tell them that this agreement has more things to help homeowners than anything that we’ve seen before and probably ever will see again.

“And on the principal reduction, let me make the point that I made before. I believe that this agreement will eventually make widespread principle reduction throughout the country commonplace for the reason I said – that there’s going to be a significant amount done right away, particularly Bank of America is going to have a wide open plan that anybody that meets the basic criteria in a very large pool can get a principal reduction. And once this demonstration of principal reduction takes place, it will work and it will become commonplace.

“And this agreement is the only thing out there that has any kind of a chance to get to that place of principal reduction. So in terms of homeowners that want principal reduction, this is the vehicle.

“In terms of the other benefits, you know, $3 billion for refinancing on loans for the people that have been forgotten. They’re the people that are underwater. Their mortgage is greater than the value of their home. They make their payments day-in and day-out, month-in and month-out. They meet all the other criteria for lower interest rate but they’re blocked because their homes are underwater. They can’t get a refinance to a lower rate. That’s unfair. This breaks that unfairness. And I don’t think those homeowners would tell us we’ve settled too low.

“And on the borrower payments, that’s a really very small part of this. It’s $1.5 billion out of $25 billion. And the context is this: that if you were foreclosed upon in the last few years and you can point to anything wrong that the servicers did – lost your paperwork, missed a deadline – then you can get this payment of $1,500 to $2,000. These will go to people that cannot recover in any other way. If they sued, they couldn’t recover and also will have a situation where if they find out later they could have recovered, they’re not giving up any legal rights. So in that context, that homeowner that couldn’t have gotten any relief – couldn’t get $1 – and they’re getting a check for $1,500. They’re not going to tell us we settled too cheap.

“This is a strong, balanced agreement. It’s got a lot of other things almost hidden in there that will help homeowners. One of the really great things is that if people are eligible for a loan modification, the banks won’t screw up those decisions anymore. There’s teeth – there’s regulations – in there to make that happen. That homeowner’s not going to say it was too little.

“Sometimes they’ll charge fees that shouldn’t be charged. There will be the monitor looking at that. And if they find that fees are being charged that shouldn’t and there’s any indication that they’re widespread, the monitor will go and get those fees back. No new lawsuit. No new regulation. Bang – right part of the monitor. So those people are not going to tell us we settled too cheap.

“This is a strong, creative agreement. It’s going to help homeowners in significant ways – far more than anybody else has in the past in this context, and I predict, far more than anybody will in the future.”


HUD Secretary Shaun Donovan: 

“Let me just add to that because I think there’s two specific misunderstandings about this that have contributed to this question here.

“One is that the math of this, given the complexity of it, I think has given some misunderstanding about.

“And just to be specific, many people are taking $20 billion in expected homeowner relief, which is the portion the $5 billion in cash in the piece that we’re announcing today and $20 billion in benefits to homeowners, dividing that by the number that folks have heard of 1 million and say, ‘Well that’s about $20,000 a homeowner. It doesn’t sound like much’ in the context of people who are underwater, you know, $30,000, $40,000, $50,000.

“The way that this will work is we will be crediting the banks against their requirements – not for best efforts – their requirements to actually reduce principal, actually deliver benefits. But we won’t be crediting them dollar for dollar.

“If a loan is highly delinquent and the bank wouldn’t rationally be able to expect to collect on that loan, we’re not going to give them a dollar of credit for writing off a dollar of that loan. We’re going to give them far less credit.

“And so in the end what we are likely to get in terms of actual principal reduction is in the neighborhood of $35 billion out of the $20 billion in consumer relief.

“And so the math is actually much more significant than many have been reporting in terms of the direct benefits of the principal reduction. We’d be happy to go through the specifics of that. We have available state-by-state what’s expected that adds to that total but that’s very important here.

“Second thing, and this ties to what Attorney General Miller said. The portion of this that is for homeowners that have been wronged – the restitution portion – was always designed to sit in parallel to a separate process that has been set up by federal regulators as a result of consent judgments.

“The idea of that process is a homeowner can come in, have their claims reviewed at the cost of the banks, and full compensation is made for the wrong at the cost of the banks. Doesn’t have to go into court. That is the process that is now set up and is now running.

“So the idea is that there are many small wrongs that were done here that might have cost homeowners a few hundred dollars, a few thousand dollars. The idea was almost as in a class action not to have to make every one of those homeowners come in, work with a lawyer, prove extensive harm but to award them restitution as a class. That does not impede in any way their ability to go into that separate process. And if they were wronged by $200,000 because they lost their house, they can collect that from that process.

“So again, the misinterpretation is that this is somehow all that will be available to those homeowners – it’s not true. These two separate but parallel processes are set up and designed together.

“Last thing I would say is – go back to my comments earlier. In the end, it wasn’t the servicing practices that created the bubble nor caused its collapse. It was the origination and securitization of these horrendous products that created it. There is no question that the servicing practices that are at issue today furthered that damage substantially.

“But even though there were hundreds of billion of dollars of harm done in the crisis, the wrongs that we are righting today are a piece of that. And we believe strongly – and we have done extensive research to see what we could have recovered if we won every suit that could be brought under this, and we believe this settlement is extremely good settlement in terms of recovery for the claims that we’re releasing.

“And just to be clear, no GSE loans – Fannie and Freddie loans – are at issue here. They represent about two-thirds of the market, right? None of those claims are being released. No criminal claims. No claims related to civil rights of any kind. The origination claims of FHA and the GSEs that are enormous claims in addition to the securitization claims – we’re retaining those.

“And so you have to look at this in the context of what’s actually being released and being solved today. And that’s why it’s so important as the Attorney General said as we announced our task force, that makes a very clear point – we are retaining those rights and that we’re going to be aggressive about going after claims going forward.”


Question: “You were just saying that the banks may now be ending up paying something closer to $40 billion?”


HUD Secretary Shaun Donovan: 

“I didn’t say that…I said the benefit to homeowners – the direct benefit to homeowners – will be larger than… Just to take a… I’m sorry, go ahead…”


Question: “But what I was getting though is from the banking side of this, some of these banks are still struggling to recover from the financial crisis. Do they have the capacity to make these fixes, to pay this money? Have they reserved already for some of these payments? Are you concerned at all that this could hurt the financial health of some of these banks?”


HUD Secretary Shaun Donovan:

“There is no question that there are reserves that have been taken. This process has obviously been extensive and lengthy discussions. And reserves have been taken, I believe, at all of the institutions that are a part of this and even some institutions that we’re discussing these claims with but are not part of the announcement today. So we believe that is the case.

“But look, in the end, one of the critical things about this is – and to repeat Tom Miller’s – principal reduction is an important part of steps that we need to take and they include steps like the refinancing plan that the President announced and the work that we’ve done with Fannie and Freddie we’ve announced. Those are steps that will help our housing market recover. And the benefits, not only to homeowners and the broader economy, but to these very institutions themselves are enormous if the value of properties across the country begin to rise as a result of these acts.

“So in the end we believe that this announcement is not just good for homeowners and the economy but ultimately will help the financial institutions in the end while there may be obviously short-term impacts to their balance sheets – those have been reserved for. It is critical for all of us to be able to get the housing market accelerating in its recovery.”


Question: “The GSEs you’ve mentioned – are Fannie and Freddie loans exempted or is it just the future claims are? Is it ones they own or guarantee?”


HUD Secretary Shaun Donovan: 

“So Fannie and Freddie through the FHFA have a separate process of enforcing servicing violations. And so in that they will be and they are pursuing those claims and they have separate processes as FHA does for origination violations, etc.

“Specifically on which loans this will apply to, we see the refinancing portion that is part of the settlement as a perfect complement to the refinancing efforts that the President has already talked about and that are moving forward for underwater current homeowners in Fannie and Freddie loans.

“We knew as we were designing this settlement that we already made sure that Fannie and Freddie borrowers who were underwater and current could refinance at record low interest rates today. But we knew that that option was not available to homeowners that had loans that were in the portfolios of the banks, and that’s what the refinancing component is focused on so it complements what is available through Fannie and Freddie borrowers.

“On modifications, Fannie and Freddie are already doing extensive payment modifications for those homeowners. They are not to-date doing significant principal reduction. This settlement because Fannie and Freddie are not part of it cannot require that they do principal reduction.

“But the President announced just a few weeks ago steps that will make for the first time Fannie and Freddie eligible for incentives to do significant principal reduction. They are evaluating that as we speak, and we look forward to taking additional steps that could make principal reduction available to Fannie and Freddie homeowners.

“Very, very important point: we worked very hard to align these servicing standards and to bring Fannie and Freddie on board. So the servicing standards do apply across-the-board, not just to private label securities or portfolio loans for the banks but also Fannie and Freddie loans. It’s a critical point.”


Question: “I have a quick follow-up on the point…Of the $17 billion in credits, is there a maximum amount that those credits that can be earned by modifying loans and mortgage-backed securities?”


HUD Secretary Shaun Donovan: 

“There is not a cap on that. There has been a lot of misunderstanding about this issue so let me just try to clarify.

“There is a dramatically lowered credit, if you will, for principal reduction for investor-owned loans or also called service for others loans.

“And we expect of the principal reductions that get done – and principal reduction on first and second loans that keeps families in their homes – so not short sales or others but principal reductions just to keep families in their home – is a minimum of 60% of the consumer menu that’s available.

“We expect a relatively small share in the range of 15% of the principal reduction to be done in service for others loans. There is a special kind of effort that Bank of America will make as part of this agreement, where they have agreed to do deeper principal reduction and to solicit every single one of the old Countrywide homeowners – about 80% of those are private label securities loans. And as you may be aware, they’ve already made a significant or a substantial payment or agreed to make a substantial payment to investors in those loans.

“So our expectation is that the vast majority of private label security loans that are reduced in principal as a result of this would be the old Countrywide loans and investors are being compensated on those loans.

“Also, let me just be very clear. There’s clear language in this document, in the settlement agreement, that says nothing in it requires any trustee or servicer to reduce principal where it’s not allowed legally by the underlying documents nor where it’s not net present value positive or in the interest of those investors.

“So the misunderstanding somehow that investors will be paying the banks’ share is false. This is real penalties for banks, real costs for the banks, and the vast majority of loans are going in the portfolio of the banks anyways that the principals are reduced.”


Iowa Attorney General Tom Miller: 

“There’s no max. But let me try to clear up just a little bit of confusion.

“Some writers, perhaps you, have written that when investors’ loans are modified by principal reduction, the investors would lose money and that’s unfair to them. That reveals – and it’s not only you but a very prominent United States Senator who I have a lot of respect for wrote a letter saying the same thing. But that totally misunderstands principal reduction.

“Principal reduction is an effective way for everybody to win. And when I say that, I mean this: that there are some homeowners that can’t make the full payment but they can make part of it. And the part that they make is more than what the investors would realize under foreclosure. So it’s in everybody’s interest to do that modification. The homeowner stays in his home. The community is protected. The investor gets more money by the modification, not less money. That is what principal reduction is all about. That’s the fallacy in some of those stories and the letter by the Senator.

“This is something that we in Iowa know very, very well. We had a terrible farm crisis in the 1980s and our whole farm community was being torn asunder. And we came up with this idea of loan modifications.

“And the head of the bankers’ association in Iowa and I went arm and arm to the legislature – the two of us – got legislation passed so that there was required mediation before there could be a foreclosure. And that was the vehicle to get to this win-win situation, and farmers – many farmers – stayed in their homes. The investors realized more.

“And when we saw this crisis coming for homeowners, you know, we’ve seen this before. That’s why Patrick Madigan and I and others in 2007 went to the banks and made this appeal to do loan modifications for both interest rate reductions and principal reductions.

“It’s a win-win-win for everybody in the right set of circumstances. And guess what? What’s designed in this package is exactly looking at the right circumstances.”

Question: “Will the banks get credit for prior modifications or principal reductions?”


Iowa Attorney General Tom Miller: 

“No, they will not.”


Question: “So when will they…?”


Iowa Attorney General Tom Miller: 

“I think it’s the at the signing or the consent decree. It’s soon but not yet.”



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3 Comments on “Transcript: Press conference Q&A on the $25 billion multi-state mortgage settlement

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