(And Have Someone Else Pay!)

It’s just astonishing really. No, actually, it’s not. It’s business as usual here in the good old corporate state:

But it turns out that mortgage bondholders paid for nearly one-quarter of the settlement, or $5 billion at a minimum. These investors have long complained to regulators that the settlement was poorly structured because large bank servicers got credit for principal reductions and loan modifications they did not pay for themselves.

“Investor loans were responsible for an enormous amount of credited relief,” says Laurie Goodman, the director of the Housing Finance Policy Center at the Urban Institute. “This was very, very clearly more than was originally thought would be provided through investor loans.”

The settlement was structured to give banks more incentives to write down principal on loans they owned themselves, with fewer incentives for modifying loans held in securitized trusts. For example, servicers received a dollar of credit for every dollar of principal writedowns on mortgages they owned themselves but 45 cents’ credit for every dollar in reductions on investor loans…


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