Earlier last week, a term sheet being negotiated among 50 state attorneys general (AGs) and the five largest mortgage servicers was leaked to the press. It does give us a brief, if incomplete, glimpse of the high-powered conversations on which the fate of millions of homeowners rests. The document outlines a baseline standard of care. This is nice, but the leaked document lacks crucial details, which is where the devil always lies. Nor does it speak to major community needs, such as those detailed in this letter to Kamala Harris, California's Attorney General, the most important of which is accountability.
Today our system is fraught with servicers who take shortcuts. Without enforcement, apathy and bureaucracy dominate the broken foreclosure machine and wrongfully take homes from families like the Perezes. In December 2008, the Perez family began the process of seeking a loan modification for their Los Angeles home. They jumped through hoops for a year before they were granted a HAMP modification. Then, after five on-time payments, they were suddenly denied their modification. They renegotiated their terms and the bank postponed auction sale of their home. In September 2010, a trial modification was reinstated. However, this success was short-lived, for one month later they were informed that the house would be put up for auction. Hopeless at the end of this wild goose chase, they couldn't save their home. In February 2011, the home they owned since 1961 was sold at an auction and they had three days to evacuate. By all calculations they should have qualified for a modification, but they were denied without any clear or satisfactory reason why.
American families have rights, yet no one is holding servicers accountable for wrongdoing. The attorneys general must take a firm stand for their resident homeowners. Their term sheet is a start, but it does not go far enough on principle reduction, aiding families who went through wrongful foreclosure, and banning the "dual-track" process -- continuing foreclosure proceedings while a family is being considered for a loan modification. If we have learned anything from HAMP, it's that guidelines without a compliance mechanism are just suggestions and mere suggestions do not save homes or fight for families.