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Mortgage Settlements Not Likely To Move Housing Market

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A pair of settlements reached between a collection of large mortgage lenders and regulators, and Bank of America and Fannie Mae, respectively, will do well to help lenders atone for the sins of their past. But the continued recovery of housing in general is less dependent today on settlements and payouts for yesterday’s abuses, and is instead much more reliant on market conditions here and now.

November 2012 marked the 13th consecutive month of national home value increases, according to Zillow’s Real Estate Market Reports, a streak far more responsible for housing’s recent successes than even several billion dollars in direct homeowner assistance. Cumulatively, U.S. homes are expected to gain approximately $1.3 trillion in total value in 2012, reversing five years of cumulative declines.

As values rise, approximately 1.3 million homeowners nationwide have been lifted out of negative equity in the third quarter compared with the second quarter. The national percentage of underwater borrowers fell to 28.2 percent in the third quarter of last year – the first time it has fallen below the 30 percent threshold since Zillow began calculating the figure using a revised methodology in early 2011.

Robust investor demand for low-priced homes helped properties in some of the markets hardest-hit by foreclosure and negative equity – places such as the Detroit, Phoenix and Las Vegas areas – record year-over-year price gains in the double digits.

If these gains are to be sustained and built upon, then home value growth – above almost everything else – must continue apace. Currently, Zillow is calling for 2.5 percent home value appreciation for the 12 months between November 2012 and November 2013. This growth should be enough to both lift considerably more homeowners out of negative equity in 2013 and persuade more potential sellers to list their homes and help ease supply constraints in some areas.

All of which is not to minimize the impact these settlements will have on the margins of the overall housing market, particularly the $8.5 billion agreement between the Office of the Comptroller of the Currency and 10 of the nation’s largest mortgage lenders. The agreement ends a contentious, and expensive, process begun in 2011 that sought a full accounting of the various breaches and subversions of the foreclosure process by lenders during the housing crash. Under the settlement, certain borrowers wronged by these lenders during the foreclosure process can expect direct payouts ranging from several hundred dollars for minor violations to $125,000 for the worst offenses.

The money will likely be small comfort to some, but the agreement itself is important if for no other reason than it helps to bring closure to an ugly period in recent economic history. It seems likely now that we won’t get the full story of what really went on behind closed doors during the peak of the foreclosure crisis, which is unfortunate. But from a bigger perspective, it can’t help but aid in rebuilding trust between lenders and borrowers and assisting potentially hundreds of thousands of wronged homeowners.

But millions more will be unaffected by these settlements. Their fate will be determined by the trillions of dollars in equity held by millions of homeowners at stake in the current housing market recovery – not the billions of dollars flowing from a handful of lenders to a relative handful of borrowers.