$25 billion Foreclosure Settlement: Is it Truly What the Doctor Ordered?

The historic $25 billion foreclosure settlement between the five biggest mortgage servicers – Bank of America, Wells Fargo, JPMorgan Chase, Ally Financial and Citi – and their wronged homeowner clientele has been under much scrutiny since its release date on February 9, 2012.  Many analysts  are speculating on the settlement’s effectiveness in boosting the country’s downtrodden real estate market ; others are blatantly pessimistic in their stance that the $25 billion will do noticeably little to correct the course of this sinking ship.  When comparing the two driving monetary aggregates –

1. total foreclosure settlement dispute = $25 billion

2. total negative equity in the US = $700 billion…

it is hard to maintain optimism when the sheer discrepancy between diagnosis and remedy is so evident.  As the son of a doctor, I can make a medical comparison… it’s like applying a band aid  to a broken back.  The foreclosure settlement may provide immediate protection on the surface of the wound, but will likely do little for the long-term solution to the real estate market’s broken framework.

As a native Los Angelean  and member of the C.A.R., I find myself evaluating the foreclosure settlement on the local [and state] level.  Although the nationwide settlement package may not boost the real estate market on a national level, is it possible for some states and local RE markets, say the Los Angeles market in California,  to benefit more relative to others? Further detailed scrutiny of the settlement statistics on the local level will demonstrate a perhaps gloomy verdict:

·         The state of California is to receive $18 billion of the entire $25 billion settlement package

·         Of the $18 billion, the dependable  Orange County Register reports that $4 billion is being allocated to Los Angeles County alone

Based on the above, we can assume each targeted relief area – principle reduction, refinance assistance, recourse settlements, and wrongful foreclosure via turbo-signing – of Los Angeles County will receive 22% of the entire California settlement package.  Extrapolating these reported [national, statewide and local] figures a step further, each settlement allotment provided by the California’s attorneys general Kamala Harris will equate to:

·         55,000 LA HOMEOWNERS will be eligible for principle reductions who are underwater on their loans and behind or almost behind in their payments, for an average of $48,000 each

·         6,160 LA  HOMEOWNERS who are current on their payments but underwater on their loans will eligible for help with refinance programs like “HOPE”, for an average of $30,321 each

·         30,800 LA HOMEOWNERS who were foreclosed upon between 2008 and Dec. 31, 2011, will be eligible for an average check of about $1,993 each

·         7,040 LA HOMEOWNERS will be eligible for assistance with unpaid balances on recourse loans that are remaining when their homes are foreclosed, for an average of $109,375 each.

Will the above relief breakdown add enough stimulus to turn around the Los Angeles County RE market? Or are there far too many homeowners too far gone and too upside-down for the settlement relief for the LA County markets to gain traction as a result?  If we look at one last telling reported figure, I may unfortunately need to refer to myself not as an avid blogger, but as a bearer of bad news.  According to Foreclosure Radar:

·         LA county saw $6 billion in foreclosures last month alone

·         12,177 new foreclosure or notice of default filings from Nov 7^th, 2011 to January 16^th, 2012, a mere 6 week span.

The far-reaching devastation of real estate crisis is so vast in scope, that the steep number of new foreclosure stories will make it difficult for any government solutions package to truly stop the bleeding.  and As a native Los Angelean, and speaking as an active Los Angeles Realtor, it pains me to write this settlement package is likely NOT WHAT THE DOCTOR ORDERED?