A proposed settlement with the nation’s top five residential servicers could prolong the foreclosure crisis, drive up mortgage interest rates, slow new home construction and cost $7 billion to $10 billion a year, according to a study from three top economists.
The study, which was commissioned by the financial services industry — including some of the servicers involved in negotiations — unequivocally states that terms sought by the 50 state attorneys general and a host of federal agencies would do more harm than good.
It was written by three economists: Charles Calomiris, a professor of financial institutions at Columbia Business School; Eric Higgins, a professor of finance at Kansas State University; and Joseph Mason, the chair of banking at Louisiana State University and a senior fellow at the Wharton School.
The study, provided to American Banker, is an analysis of the proposed settlement offered by the state AGs in February. (AB is a sister publication to National Mortgage News.)
"We find that a settlement along these lines would generate significant unintended negative consequences for housing and financial markets," the study said. "In particular, we find that … the settlement is unlikely to provide broad or lasting benefits … We conclude that the settlement would serve to extend, rather than end, the foreclosure crisis."
