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Richard Zombeck

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Below the Fold: Where did the $26 Billion go?

Posted: 09/14/2012 10:45 am

A wrap-up of stories and posts you might have missed or overlooked -- the ones below the fold.

You may remember some hubbub back in February about some talks involving a $26 billion settlement that was supposed to provide relief to nearly two million American homeowners. Many homeowner activists, bloggers, and homeowners themselves saw the settlement is nothing more than another giveaway to placate the banks and servicers. It's starting to look as though they were right.

Despite the warnings, outrage, and in some cases pleading, some of the biggest voices in the consumer advocacy community touted the settlement as a positive thing for homeowners.

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 said:


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.

Former White House Advisor, Van Jones, now running "Rebuild the Dream" and never one to miss an opportunity to pipe up about something somewhere said:

That is small comfort, perhaps, but it was hard won. So we should honor the hard work of New York State Attorney General Eric Schneiderman, California Attorney General Kamala Harris and others, including many grassroots progressive organizations like New Bottom Line. They fought courageously to prevent a total sweetheart deal for the banks. This outcome is the result of determined activism, and without this heroic effort, the deal would have been drastically worse.

All pretty big names with pretty big voices congratulating themselves and their colleagues over a job well done, but looking at what's actually been accomplished in the last six months as a result of the settlement there's been very little follow-through from anyone who previously saw this as a victory.

The Social Science Research Network released a study last month that was 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 - the government's anti-foreclosure program.

According to the report nearly 800,000 homeowners could have avoided foreclosure had the banks done a better job at modifying loans. ProPublica's Paul Kiel put together a fairly in-depth article on the findings of the report, in which he writes:



Unfortunately for homeowners, most mortgages are handled by banks that haven't been properly staffed and thus have modified far fewer loans. If these worse-performing banks had simply modified loans at the same pace as their better performing peers, then HAMP would have produced about 800,000 more modifications. Instead of about 1.2 million modifications by the end of this year, HAMP would have resulted in about 2 million.

It's a bit sympathetic to the bank's claims that they were understaffed and overworked, but still a worthwhile read.

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 - just six months later. 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 Los Angeles Times reported


The report showed that Bank of America Corp. faltered in one key area of the settlement, completing no modifications of first mortgages from March 1 to June 30, the period covered in the first status report released by the Office of Mortgage Settlement Oversight.

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.

As an added twist, according to Jim Gallagher of the St. Louis Post-Dispatch, banks could be completely sidestepping the foreclosure settlement with short sales:


That raises the question: Would the banks have forgiven that debt even without the settlement? Have banks found a nifty way to reduce the amount $25 billion they agreed to pay to settle the suit over their foreclosure practices?

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 that is going for short sales.

More egregiously, the settlement money that was to be used to provide relief for homeowners is instead being used by some state officials to fill budget holes, top off coffer, and offset taxes.

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 happens, it looks like the settlement wasn't such a great idea or the big first step everyone claimed it would be. The banks and servicers still get to do what they want; they get to do it how they want; and individual states get to use the money however they want as long as it's not to help struggling homeowners for whom the money was intended for in the first place.

Oddly enough, everyone who was so quick to applaud the settlement and take the opportunity to grandstand as a homeowner advocate six months ago, has become conspicuously quiet when it comes to follow through. An unfortunate recurring theme.

 

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