JPMorgan Fights Back on Forced Principal Forgiveness

Property Tax
Property Tax

It's not like we didn't already know the banks were opposed to forgiving principal on troubled loans, even though they claim they are doing a little of that now. But today CNBC's Melissa Francisgot an earful from JPMorgan Chase's Charlie Scharf, CEO of Retail Financial Services.

"We've got to be very careful that we don't create an environment where we encourage people not to pay, and that's the danger you have when you get into broad based principal forgiveness," said Scharf.

This is all in reaction to the big push on principal reduction by state attorneys general, meeting in Washington DC this week. While the head of the 50-state investigation into so-called "Robo-signing" foreclosure paperwork issues, Iowa Attorney General Tom Miller, did not put forth a fine or penalty fund in his first settlement proposal, the expectation is that banks will be subject to such a fine that would be used for banks to write down mortgage principal.

Already, Senate republicans are blasting any payment.

Sen. Richard Shelby, the top republican on the Senate Banking Committee, at a hearing today put the number to be "extracted" from banks at $30 billion.

"I question whether removing $30 billion in capital through a back-door bank tax is the best way to jump-start lending. The long-term consequences of this settlement could be even more serious. It would politicize our financial system," Shelby said in a statement, while calling for an investigation into what he deems a "regulatory shakedown...led by Elizabeth Warren."

I'm not really interested in the politics surrounding this 'settlement,' more in what it will mean for the housing recovery going forward.

Home prices are double-dipping, foreclosures are in a standing mess due to paperwork issues, and credit to worthy consumers is only getting harder to come by.

The state AGs put out a framework for new foreclosure practices, but they intentionally didn't put out the big bad penalty number because they knew it would ignite a firestorm.

My question is: When will the firestorm start, and who will put it out?

Questions? Comments? RealtyCheck@cnbc.comAnd follow me on Twitter @Diana_Olick