$26B Mortgage Settlement: Good for Banks, Not So Good for Homeowners

After months of wrangling, the long-awaited foreclosure settlement between the government and the banks appears to be at hand.

A $26 billion settlement was announced Thursday morning between the federal government, state attorneys general and the five biggest banks in the mortgage market: Ally Financial (the old GE Capital), Bank of America, Wells Fargo, JP Morgan and Citigroup.

The settlement is being hailed as the biggest multi-state settlement since the 1998 tobacco agreement. But as Henry and I note in the accompanying video, the settlement is too small to really help the housing market, or even do much for individual victims of fraud and abuse. The deal may, in fact, hurt housing by sending a message to people who've stayed current on their mortgages that irresponsible behavior is what gets rewarded in America. That, presumably, is not the intention of policymakers but the "moral hazard" fallout from the settlement. More Americans may "walk away" from uneconomic loans, which will put additional pressure on local housing markets.

http://finance.yahoo.com/blogs/daily-ticker/26b-mortgage-set...