Anticipation for Market Begins at Close of Settlement

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.

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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).

While the relief provided to homeowners is said to be immediate, ESOP questioned exactly how homeowners will be notified of the relief they can receive, especially those already in foreclosure.

""[The] devil is in the details. In our experience, the industry has never done anything voluntarily to repair the damage they wreaked over the last decade, and we have no reason to believe this settlement will be any different,"" said Seifert.

In addition to the $25 billion, new servicing standards were set for the top five servicers - Bank of America,

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JPMorgan Chase, Wells Fargo, Citigroup, and Ally Financial â€" to address robo-signing, lost paperwork, and problematic modifications.

Some of the standards include an end to robo-signing practices and improved communication between servicers and borrowers, such as notifying customers 14 days before referring loans to a foreclosure attorney. Again, while market participants acknowledge this a direction towards recovery, impact is still in question.

""A final agreement can play an important role stabilizing and providing certainty and confidence to the housing and mortgage markets,"" said David H. Stevens, President and CEO of Mortgage Bankers Association (MBA). ""With all the rumors and speculation surrounding these negotiations behind us, it is now imperative that policymakers, lenders, servicers, and other stakeholders work together on policies and initiatives that will allow us to get the housing market on the road to recovery. I would caution, though, that, while a positive step, this will not be a panacea for all that ails housing.""

Oklahoma, the only state that did not sign onto the agreement, reached an independent mortgage settlement agreement with the five banks. The servicers agreed to pay Oklahoma $18.6 million.

""This settlement will provide damages to those Oklahomans who did fall victim to unfair and unlawful misconduct of mortgage servicing companies, while not exceeding the appropriate role and authority of state attorneys general,"" Pruitt said.

When Iowa Attorney General Tom Miller announced in March that the settlement expanded beyond investigating fraud and unlawful practices and into the restructuring of the mortgage industry, Pruitt sent a letter to Miller, voicing strong concerns, according to a release issued by the Oklahoma attorney general's office.

""We had concerns that what started as an effort to correct specific practices harmful to consumers, morphed into an attempt by President Obama to establish an overarching regulatory scheme, which Congress had previously rejected, to fundamentally restructure the mortgage industry in the United States,"" Pruitt said.

Another concern stated in the letter to Miller was that the terms might encourage more homeowners to default.

When addressing the settlement, President Obama argued it would help millions of people affected by the housing market crises.

""These practices were plainly irresponsible and we refused to let them go unanswered,"" Obama said at the White House. ""This settlement is a start. We're going to make sure that the banks live up to their end of the bargain.""