Pennsylvania Attorney General Tom Corbett, whose office spent several months investigating deceptive mortgage practices alleged against Countrywide and its affiliates, has announced that Pennsylvania has joined the $8 billion settlement announced in October with Attorneys General from now over thirty states.
In exchange for extinguishing the state’s claims against Countrywide, the settlement will allegedly make over $150 million available to help keep borrowers with subprime and pay-option mortgages in their homes.
As discussed in several previous posts (collected here), the primary question engendered by this news is who will really bear the cost of these loan modifications? Though a surface-level reading of the news makes it appear that Countrywide (or BofA) will actually pay $150 million to the state of Pennsylvania to help keep borrowers in their homes, the truth is that Countrywide, which no longer owns most of these loans, will work to modify the terms of the loans to allow borrowers to keep making payments. Though the ultimate loss in revenue generated by the loans may be around $150 million, investors such as hedge fund Greenwich Financial Services have claimed that this loss is actually born by the investors who currently hold an interest in the loans (see, e.g. prior posting here), rather than by Countrywide, which is acting simply as servicer. According to a suit recently filed by Greenwich against Countrywide, this result is contrary to the terms of Countrywide’s Stipulated Judgment with the Attorneys General.
Why this fundamental issue has not been identified by the Attorneys’ General, let alone satisfactorily explained, is anyone’s guess. However, it doesn’t take a rocket scientist to realize that when BofA purchases Countrywide for $4 billion and then quickly settles claims against the entity for $8 billion, something doesn’t add up.
