Too Many Bargains With Pending Foreclosure Settlement, Advocates Worry
Posted by Matthew Brian Hersh on January 23, 2012
Housing advocates and many legislators are voicing their concern with an anticipated $25 billion settlement stemming from an investigation by state attorneys general looking into deceptive lending practices. The scope of the settlement, the extent of its effect on lending practices, as well as potential exemptions from prosecution or civil suits have all taken center stage leading up to Tuesday's State of the Union address, when President Obama is expected to make reference of case.
A final deal between the state attorneys general and the banks—Bank of America, JPMorgan Chase, Wells Fargo, Citibank and Ally Financial—could be sealed within weeks, according to The Washingon Post. And while the settlement would fall short in way of assistance to those eligible—only about $1,800 for roughly 750,000 individuals—there could be changes when it comes to a bank's assistance in restructuring a loan:
"Those who lost their homes to foreclosure are unlikely to get their homes back or benefit much financially from the settlement . . . but the agreement could reshape long-standing mortgage lending guidelines and make it easier for those at risk of foreclosure to restructure their loans. And roughly 1 million homeowners could see the size of the mortgage reduced."
However, "the settlement would only apply to privately held mortgages issued between 2008 and 2011, not those held by government-controlled Fannie Mae or Freddie Mac," the government-backed agencies that own about 31 million, or roughly half, of all U.S. home loans—an omission of particular concern for advocates.
"There is no question that the big banks can and should be doing more to save homes and pay for wrongful foreclosures," wrote Janis Bowdler, director of the Wealth-Building Policy Project at the National Council of La Raza, recently on Rooflines, but "FHFA's firm stance against principal reduction and Fannie and Freddie's demands for speedier foreclosures are working against the secure housing market Americans want" (emphasis ours). Bowdler added "their policies may have actually contributed to the enduring robo-signing scandal." However, it seems unlikely in the near term that a full-scale principal forgiveness program will be part of any Fannie and Freddie effort to save homes. FHFA Acting Director Edward DeMarco sent a letter last week to Rep. Elijah Cummings (D-Maryland) saying that a principal reduction plan for for underwater loans held by Fannie and Freddie would cost about $100 million—an expense that should "require congressional action."
There are also those calling for culpability. Robert Borosage, co-director of the Campaign for America’s Future, said in a statement that settling "with the banks before there is an investigation violates our basic sense of justice. No one who robbed a bank would be offered immunity, a modest fine and no admission of guilt—before there was an investigation into who stole the money and how much they took."
The Alliance of Californians for Community Empowerment characterized the impending settlement as an "insiders" deal, calling for sector-wide principal reduction standards, industry servicing practices reform, enforcement mechanisms, and "fair, ample restitution" for homeowners who lost their homes without due process.
Details of this settlement are sure to elicit reactions from all corners. What's your take? Let us know in the comments section below or write to us at firstname.lastname@example.org.
Photo credit: The-Lane-Team via Creative Commons.
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Matthew Brian Hersh proudly served as senior editor at Shelterforce from March 2008 to October 2012. He studied English at Rutgers University and has spent his professional career in journalism, policy, and politics. He displays many of the trappings of a New Jersey sports fan: dispirited Mets fan, former Nets fan before they left the state, and normally satisfied Giants fan. Hersh lives in Highland Park, NJ with his wife and two children.