Sunday, October 21, 2012

Where Is the $26 Billion

You may recall some news back in February regarding a $26 billion settlement that was supposed to provide relief to nearly two million American homeowners.
Despite the warnings, outrage, and in some cases pleading, some of the biggest voices in the consumer advocacy community touted the settlement as a victory for homeowners and their rights.
At the time, AFL-CIO President Richard Trumka said, "The banks broke the law by railroading homeowners through the foreclosure process. Today's settlement provides compensation for foreclosure victims without requiring individuals to waive their legal claims. While banks must be made to pay more to help homeowners, the settlement includes needed principal write-downs so homeowners can stay in their homes."
Alys Cohen of the National Consumer Law Center said it would move the ball forward and that it was a game changer. Iowa Attorney General Tom Miller, who headed up the whole process, said "This agreement is the only way we're going to get to substantial principal reduction."
NAACP President and CEO Benjamin Todd Jealous was quoted as saying "this monumental settlement is a strong step towards assisting the millions of current and former homeowners that were exploited, discriminated against and taken advantage of by major mortgage servicing banks. The principal reductions, refinancing and other relief will provide desperately needed relief."
These are some pretty big names congratulating themselves on a job well done. Unfortunately, the actual results of the settlement have not lived up to the hype.
The Social Science Research Network released a study last month that was a collaborative effort of the Federal Reserve Bank of Chicago, the government's Office of the Comptroller of the Currency (OCC), Ohio State University, Columbia Business School, and the University of Chicago measure the impact of HAMP, Obama's Home Affordable Modification Program.
According to the report, nearly 800,000 homeowners could have avoided foreclosure had the banks done a better job of modifying the loans. Unfortunately, the HAMP program included a principal forbearance element that was rejected by the banks. So, was it that HAMP was ineffective at resolving the mortgage crisis, or that the banks refused to let the program succeed? With the increased incentives for principal reductions and the National Mortgage Settlement, it seems clear that the latter was the culprit for the program's shortcomings.
So what about the $26 billion? In some cases, the banks are dragging their heels. The Office of Mortgage Settlement Oversight released its first report on August 29, 2012. According to the report, Bank of America, the bank responsible for the biggest portion of the agreement, had yet to modify a single mortgage.
The other four banks covered by the settlement, JPMorgan Chase & Co., Wells Fargo & Co., Citigroup Inc. and Ally Financial Inc., reported that they had completed 7,093 modifications of first-lien mortgages worth a total of $749 million. JPMorgan Chase completed the most such modifications with $367 million.
The figures are similar across the nation. At least 60 percent of the money is supposed to go to homeowner relief. But the bulk of the funds are going for short sales and deed-in-lieu workouts, which basically defeats the purpose of the funds, which was to keep homeowners in their homes. Worse yet, the settlement money that was to be used to provide relief for homeowners is in some case being used by some state officials to fill budget holes, coffers, and tax shortfalls.
New Jersey Governor Chris Christie, the latest to jump on the "we have free money and screw homeowners" band wagon, wanted to divert $75 million earmarked for New Jersey homeowners to offset tax breaks for the state's wealthiest residents, according to NJ.com.
In Texas, $125 million went straight to the general fund. Missouri will use its $40 million to soften cuts to higher education. Indiana is spending more than half its allotment to pay energy bills for low-income families, while Virginia will use most of its $67 million to help with revenue. Georgia plans use its $99 million to lure companies to the state.
So, as it turns out, the settlement money will not reach the intended recipients and we have yet another case of our both big banks and government working in concert to put on appearances that they are trying to help America's homeowners, while the funds are spent for purposes for which they were not intended.