Banks to take a hit on US home loans

Investors in US home mortgage securities will be forced to write down a “substantial” amount of principal – up to $40bn – for distressed borrowers as part of a national settlement against leading US banks to resolve allegations of widespread foreclosure abuses, the Obama administration has said. The housing secretary’s remarks signal an escalation on the part of the Obama administration to secure lower monthly payments for troubled borrowers and reduced loan balances from banks accused of wrongdoing and investors in the mortgages those banks service – even if the investors are not the targets of government investigations. Investors in the $1.1tn market have long feared such an outcome. “The use of mortgage trust money [from pensions funds, unions and charities] to settle the investigation is tantamount to a bank bail-out,” said Chris Katopis, executive director of the Association of Mortgage Investors.

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