The $25 billion National Mortgage Settlement may be the largest ever such settlement, but when it comes to the level of negative equity suffered by American households nationwide, the settlement is far from enough.
The National Mortgage Settlement is an agreement between states and the federal government and Bank of America, JP Morgan Chase, Citigroup, Ally Financial and Wells Fargo – banks that were rescued with taxpayer money – to provide $17 billion in mortgage relief, including principal reductions of up to $20,000 to more than 1 million homeowners.
The servicers are also expected to send checks of about $2,000 to an estimated 750,000 Americans who suffered improper foreclosures. Another $1 billion will go to the federal government and $3 billion will help servicers refinance borrowers into lower-interest rate loans.
The settlement is payback for a twisted culture of foreclosure violations including “robo-signed” (forged or falsified) affidavits in foreclosure proceedings; deceptive practices, including “dual tracking” (simultaneously working a modification application and a foreclosure procedure on a mortgage); failures to offer non-foreclosure alternatives before foreclosing on borrowers with federally-insured mortgages; filing improper documentation in federal bankruptcy court, losing and misplacing crucial homeowner documents and generally giving distressed homeowners the runaround, rather than a single point of contact.
Critics say $25 billion falls far short of what’s needed to cure the housing crisis.
“I really don’t see this as being that big a deal. In reality, the total number of dollars is still small compared to the value of the mortgages that are underwater. To some extent, the numbers reflect losses the lenders would have taken anyway. As a result, the net impact is probably not as large as they are saying,” said Richard Green, director of the University of Southern California’s Lusk Center For Real Estate, an industry research, education and outreach effort.
Like so many other settlements, even a multi-million dollar settlement, the amount is little more than the cost of doing business – poorly.
“What’s more, in 26 states the money is being hijacked to fill holes in the state budgets. The funds are not going to the homeowners who were victimized or even to programs to prevent foreclosures. Unconscionable larceny,” said David Moakler, national director at CareConnect USA.
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