Bank Mortgage Solution Rooted in Tobacco Settlement

With so many stakeholders in a potential mortgage settlement, it would take a big silver bullett to satisfy everyone.
According to Frank Mayer III, a partner in the Financial Services Practice Group of Pepper Hamilton LLP, in Philadelphia, the multibillion settlement between 46 states, the federal government and the tobacco industry in 1998 can serve as a model for a national settlement of several mortgage-related problems.
Under the Tobacco Master Settlement Agreement, participating tobacco manufacturers agreed to pay at least $206 billion, including nearly $196 million paid to the states over a 25-year period, and roughly $10 billion to various special funds set up as part of the agreement.

The agreement settled litigation against the tobacco industry brought by over 40 states, after the industry's decades-long argument that its products weren't harmful, was no longer tenable.

"The macro settlement is important for the country," says Mayer, who cited the tobacco settlement as a model, since there would be so many interested parties in any mortgage settlement.

Mortgage stakeholders include investors making putback claims against large mortgage lenders, including Bank of America (BAC_), JPMorgan Chase (JPM_), Wells Fargo (WFC_), and Citigroup (C_); federal and state regulators who have taken action on mortgage servicing and foreclosures; and local county governments that "have lost millions and millions from lost recording fees, every time a mortgage is assigned through a securitization process," according to Mayer.

Just considering the thousands of counties that may have lost document recording revenue when mortgages were assigned by lenders -- with borrowers agreeing when they signed loan documents -- to Mortgage Electronic Registration Systems, or MERS, shows how complicated a potential settlement will be.