Amid all the talk of the foreclosure fraud settlement yesterday, the most honest assessment cm from this Wells Fargo economist:

But it will be months, if not years, before some of the promised relief trickles down to many families. In the meantime, some predict, the housing market may get worse before it gets better.

“The immediate results are not going to be all that pleasant,” said Mark Vitner, an economist with Wells Fargo. His bank is one of the biggest lenders in Florida as well as a participant in the settlement. “The amount of foreclosures will actually increase and there will be some additional downward pressure on home prices.”

There’s some debate over whether the settlement will remedy enough legal woes for the banks that they will start foreclosing again in large numbers. Bloomberg thinks so. Calculated Risk mostly agrees but thinks the REO (real estate owned) properties that result will then get folded into the REO-to-rental program the Administration has pushed. Which means that private equity firms make out on this deal by getting foreclosed properties at cut rates.

I think that Wells Fargo economists have a good bead on what Wells Fargo will do in reaction to the settlement. And here’s some more evidence. This is an online ad posting from a couple weeks ago for a “loan servicing specialist” at Wells Fargo. The job calls for the applicant “to qualify to be a Wells Fargo officer to execute documents and the ability to pass an online MERS signing authority assessment. Assignments being executed will be for both Wells Fargo, Wells Fargo as POA, and/or MERS.” Applicants need a grand total of “6+ months experience in customer service, loan administration, collections, or salesenvironment” for this job.

This is the precise scam that we’ve seen consistently used by the banks. This is an ad, for all intents and purposes, for a robo-signer. The settlement did not put a dent in the fraudulent system of mortgage assignments and executions. It will not only go on, but it will go on with far less legal exposure.

Now maybe all that money being sent to the states goes to legal aid for foreclosure defense, and an army of lawyers will stop the madness and change the system legally. Well, we already know that Scott Walker in Wisconsin plans to use his foreclosure settlement money to fill his budget hole:

Of a $31.6 million payment coming directly to the state government, most of that money – $25.6 million – will go to help close a budget shortfall revealed in newly released state projections. [Wisconsin Attorney General J.B. Van Hollen], whose office said he has the legal authority over the money, made the decision in consultation with Walker.

“Just like communities and individuals have been affected, the foreclosure crisis has had an effect on the state of Wisconsin, in terms of unemployment. . . . This will offset that damage done to the state of Wisconsin,” Walker said.

I guarantee you Florida will go this route. So only the states with conscientious law enforcement officials will actually use the direct payments in the settlement to the benefit of homeowners. And there aren’t many of them.

So while in the long-term, a small group of homeowners might get a modest principal reduction from this settlement, in the immediate term banks will feel freed up to foreclose. They’ve set aside reserves for the hard payments, and a lot of the money they will eventually “pay” in the settlement will go to actions that they would have done anyway. And some of it will get “paid” with other people’s money, like MBS investors, and boost the second liens on their balance sheet. The banks don’t make out too shabby here. Homeowners facing foreclosure are in near-term trouble.

David Dayen

David Dayen