While the top five servicers are known to be paying for the $25 billion settlement, the ""Association of Mortgage Investors"":http://the-ami.org/ (AMI) stated the settlement is expected to draw billions of dollars from uninvolved investors, which include seniors and unions.[IMAGE]
Many public institutions and retiree institutions invested in mortgage-backed securities because they thought they were a safe investment, said AMI Executive Director Chris Katopis.
Unbeknownst by investors would be issues with mortgage servicing addressed through the $25 billion settlement and the high number of underwater homes needing to be rescued.
In a HUD ""fact vs. myth sheet"":http://blog.hud.gov/2012/03/12/myth-vs-fact-setting-the-record-straight-about-historic-mortgage-servicing-settlement/ published Monday, it was argued that the settlement will not cost teachers, firefighters, and others who invested into mortgage-backed securities.
While HUD did acknowledge that the settlement could affect some investor-owned loans, the agency stated that when considering the projected losses from foreclosures on investors, applying loan modifications, including principal reduction, will actually cost less.[COLUMN_BREAK]
HUD further clarified only loans that are delinquent or at imminent risk of default can receive modifications.
Also, the settlement does not override existing contractual agreements between the servicer and investors. If contracts don't allow for principal reduction, then servicers can't apply principal reductions.
Despite heavy criticism, Edward J. DeMarco, FHFA acting director, has not approved Fannie Mae and Freddie Mac loans for principal reductions.
AMI also argues against the use of Net Present Value (NPV) to determine eligibility for a loan modification and would like to see the makeup of the formula disclosed.
Shrouded in mystery, NPV is said to provide an estimation of the likelihood of a loan defaulting again even after getting modified, according to ""bankrate.com"":http://www.bankrate.com/.
""The NPV model incorporated into the settlement must consider all of a borrower's debts, be national in scope, transparent, and publicly disclosed,"" said AMI in a statement. ""An incorrect NPV model likely will lead to further re-defaults and further harm distressed homeowners.""
Katopis said re-defaulting will ultimately leave both investors and homeowners worse off.
While AMI supports the settlement claims against servicers, the association argues that while 49 state attorneys generals, federal officials, and five servicers were involved, investors were left out of the equation when settlement terms were negotiated.
As part of the settlement, we're critical of the fact that investors are not on the table and no doubt that investors will have to pay, said Katopis, who also said AMI is thoroughly conducting investigations to see what can be done to protect investors.