Yves Smith has a provocatively entitled post about the BoA MBS settlement.  Yves appropriately excoriates Bill Clinton for saying some plain old stupid things about the settlement (namely that it is going to have a meaningful impact on principal reduction mods–it ain't and can't.  $8.5B is a drop in the negative equity bucket, and it isn't being used for principal reduction mods anyways), but I think the more interesting part of the post is a discussion of the servicing provisions in the settlement.  

Yves is skeptical that mandatory subservicing will make much of a difference. I tend to agree, but think it's important to note when subcontracting special servicing has worked and when it hasn't. There are a bunch of small special servicers that have been doing much more aggressive mods (including principal reduction mods) than any of the big boys, but, and here's the but, they're doing it because they're working with a very different business model. They aren't doing an MSR-driven business. Instead, they are either doing fee for service or they have purchased the loans directly (at something less than face), which gives them the ability to do principal reductions (with refinancing as their exit strategy).

I'd love to see more of this happening, but I don't think the BoA settlement is going to do it. Doing special servicing for BAC is likely to involve a battery of pain-in-the-ass requirements from BAC and a messy servicing transfer. Moreover, unless the special servicing contract is drafted very carefully (and the settlement provisions create some problems there), it isn't going to fix the incentive problems in servicing. At best, it will fix capacity problems, but I'm not sure how much that will really matter. Instead of the Titanic, we'll just have a bunch of leaky canoes. We aren't going to get a hydrofoil out of this. Still, I guess some improvement is still something.