The $25 billion mortgage servicing settlement is expected to result in little financial impact on the nation's big banks, Moody's Investors Service said.
The settlement, which was struck by state attorneys general and servicers to resolve legacy foreclosure issues, will remove uncertainty over servicing issues even though banks remain exposed to high loan-loss provisions, repurchase costs on bad mortgages sold to the GSEs and private lawsuits, said Joseph Pucella, senior analyst for Moody's.
For investors in residential mortgage-backed securities, the program is a mixed bag, according to Debash Chatterjee, associate managing director at Moody's.
The settlement allocates $10 billion for principal forgiveness modifications on underwater mortgages.
For private-label RMBS investors the writedowns will prevent defaults leading to lower loss levels, Chatterjee said. However, new servicing requirements also will have a negative impact on investors by pushing loss severities higher, Moody's said.
Another Moody's analyst Celia Chen, a senior director with the firm, estimates it will take six to nine months to implement the mortgage servicing settlement.
That delayed reaction means U.S. home prices will remain on the decline through the second half of 2012.
Looking ahead, Moody's estimates the settlement will prevent between 500,000 and one million mortgage defaults.