Investor sees huge cost to settle mortgage mess

Vincent Fiorillo, founding member and portfolio manager for DoubleLine, speaks at the Reuters Investment Outlook Summit in New York, December 5, 2011.

NEW YORK (Reuters) - Vincent Fiorillo, a prominent mortgage investor, on Monday put at least a $100 billion price tag on cleaning up America's mortgage crisis.

That figure is four times the $25 billion that has been widely bandied about in ongoing settlement talks involving several dozen state attorneys general and a handful of large U.S. banks with large mortgage servicing operations.

Fiorillo, a portfolio manager with Doubleline Capital Management, said $25 billion would not be sufficient to end private litigation against the banks over faulty mortgages or keep at bay other state attorneys generals mounting their own lawsuits.

"I like the idea of a big settlement because it gives everyone a clean start," Fiorillo, who oversees a $20 billion bond fund, told the 2012 Reuters Investment Outlook Summit. "We need to clear things out."

Fiorillo, who is also a member of the Association of Mortgage Investors, has emerged as something of a spokesman for institutional mortgage investors. He has testified on Capitol Hill a number of times about ways to resolve the nation's mortgage crisis, which continues to be a drag on the U.S. economy.

He said a $100 billion deal would go a long way to enable loan modifications for homeowners whose mortgage balances exceed the value of their homes and to pay back investors who lost money on securities backed by questionable mortgage loans.

Fiorillo held out little hope for quick action on the matter, noting that with national elections coming up next year, any resolution before 2013 is highly unlikely.

"We've got a standstill here," said Fiorillo of the deadlock between the government and banks.

The Obama administration, he said, missed an opportunity in early 2009 to find a compromise with mortgage investors and banks that might have cut short pain in the housing market. Now he worries that there are few people willing to actually repair the problem.

The weak housing market, which is being held back by high levels of foreclosures and the large number of underwater borrowers, is still being blamed by economists and analysts for the country's slow economic growth.

"I don't know if there is anyone against fixing it, I just don't know if anyone is listening to the people who could fix it," Fiorillo said.

The multi-party settlement talks led by Iowa Attorney General Tom Miller, which are mainly focusing on foreclosure violations, have seen a number of prominent defections. The attorneys general of New York, California and Massachusetts, for instance, are moving ahead with separate investigations of the nation's biggest banks.

Last week, Massachusetts signaled its intent to go it alone when its attorney general, Martha Coakley, sued the country's five biggest mortgage lenders for allegedly lying to homeowners about modifying their loans and for relying on fraudulent documents to evict homeowners.

Massachusetts has been especially aggressive in extracting penalties. So far the state has collected more than $600 million in restitution and penalties from mortgage originators plus Wall Street firms that bundled loans.

Since the crisis, lawmakers have worked to overhaul regulations which will soon require lenders to make loans more cautiously, selection only people who are able to repay them.

(Reporting by Svea Herbst-Bayliss; Editing by Matthew Goldstein, Leslie Adler)