While the $25 billion robo-signing settlement concludes 16 months of intense negotiations, questions still remain on how this will impact borrowers and the larger economy.
Capital Economics stated that while it is good that the settlement has been finalized and will offer principal reductions and refinancing schemes to borrowers, the bigger picture is that the settlement is not large enough to dramatically alter the outlook for the housing market or the wider economy.
Looking at the economy, $25 billion is worth 0.2 percent of gross domestic product (GDP), and if the deal expands to $40 billion, that would be 0.3 percent of GDP, according to the Capital Economics report.
When assessing the housing market, the report projects little impact. While $10 billion will be set aside for principal forgiveness, close to 11 million borrowers are underwater, totaling about 700 billion in negative equity.
The settlement also doesn’t include Fannie Mae or Freddie Mac mortgages, which represents roughly half of American homeowners.
“It’s a start, but it’s a drop in the bucket. There is still a long way for banks to go in repairing families, communities and the housing market,” said Mark Seifert, executive director of Empowering and Strengthening Ohio’s People (ESOP).
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