Posted on Thursday, March 17, 2011
Following last week’s statement by Bank of America CEO Brian Moynihan that principal reductions are unfair and not in everyone’s best interest, more banks and even some attorneys general have spoken out against the controversial clause in the settlement proposal.
According to an article by Reuters, Wells Fargo CEO John Stumpf at a conference last week, voiced his disapproval of principal write-downs, saying such provisions would entice people to default on their loans.
Bloomberg reported that there are also at least a dozen state attorney generals who do not support principal write-downs either, although some say they do support other parts of the proposal.
According to Bloomberg, Virginia Attorney General Kenneth Cuccinelli said there was “a great degree of unease” among the attorneys general regarding the terms of the settlement. Cuccinelli also said he believes it is a problem that Fannie Mae and Freddie Mac aren’t involved in the negotiations.
The news service said Oklahoma Attorney General Scott Pruitt also opposes the settlement, saying that mandatory write-downs would force servicers to violate obligations to their investors.
Moody’s Investors Service analyzed the situation in its Weekly Credit Outlook released on Monday, pointing out that the terms of the settlement are just the first round of preliminary negotiations, and they expect the final terms to be quite different.
Even so, the company says they believe banks will be taking a hard hit from the settlement. “Large servicers will struggle to implement these changes on a timely basis and efficiently owing to their sheer size, structure, and system constraints,” the report said.
It continued, “Investors should also expect less in principal recoveries as servicers will be required to waive deficiencies from short sales and consider principal forgiveness more heavily in the loss-mitigation hierarchy.”
By: Joy Leopold, DS NEWS