The Des Moines register reported today on the first progress report of the foreclosure settlement that Iowa AG Tom Miller finalized earlier this year.
The report, released by the settlement monitor, Joseph Smith, raises several red flags. The revelation that almost $9 billion of the money committed for mortgage relief was directed toward short-sales causes the most concern.
Our impression was that this settlement was meant to keep people in their homes, which a short sale does not do. The majority of that money should have been marked for principal reduction, yet only about $750 million worth of principal has been reduced so far, and some banks have yet to reduce the principal on a single loan.
Since our first meeting with AG Miller in December 2010, CCI has been fiercely pushing for a settlement that benefits the most homeowners. A settlement that does not do that is simply another bailout for the banks.
Here is the full text of the article that appeared in the August 30, 2012 Des Moines Register:
Banks pay Iowans $6.7 million in mortgage settlement
The relief helps 260 Iowa homeowners who were victims of questionable foreclosure practices
by Victor Epstein
Financial help is moving to embattled homeowners under the $25 billion national mortgage settlement over foreclosure practices by some of the nation’s largest banks.
Mortgage servicers spent $10.6 billion on principal reductions, short-sales, refinancing and other borrower relief efforts from March 1 to June 30, according to a report Wednesday by settlement monitor Joseph Smith.
The help was directed at 137,846 U.S. homeowners, who received an average benefit of $76,616 each.
“More hard work remains as the banks work to meet their obligations,” Smith said in a statement.
That amount includes about $6.7 million in settlement-related relief for 260 Iowa homeowners, which averaged $25,781 each, according to the office of Iowa Attorney General Tom Miller. The disparity is partly due to the state’s lower home prices. Iowa residents are eligible for $18 million in direct relief in all.
Wells Fargo, Bank of America, JPMorgan Chase, Citigroup and Ally Financial reached the deal in March, while admitting no wrongdoing. Their alleged misdeeds included the falsification of documents via so-called “robo-signing” operations.
“It’s good news that here in Iowa and across the country, we’re starting to see the banks moving generally in the right direction,” Miller said. The probe began in October of 2010 amid widespread reports of servicer misconduct.
The seeds of the housing crisis were planted from 1995 to 2005 when rising home values encouraged U.S. homeowners to borrow more, looser lending standards reduced the quality of mortgage loans, and some banks engaged in predatory lending practices. The resulting housing bubble began to deflate in 2006, helping to precipitate the 18-month recession that started in December 2007.
Many homeowners were left with mortgages that cost more than their homes were worth — a status known in the mortgage industry as being “underwater.” Widespread job losses left many homeowners in financial distress, and falling home prices and historically low sales activity left them with little chance of selling their homes for the price they paid.
The housing crisis led to such practices as “robo-signing.” The term refers to the practice of signing legal documents without reviewing them, which accelerated the foreclosure process, but sometimes led to unfair actions against homeowners. An estimated 750,000 Americans were subject to improper foreclosure procedures from 2008 to 2011.
The servicers committed to $3 billion in refinancing aid for underwater homeowners in the national mortgage settlement, which insulates them from some civil litigation by state and federal governments. They could still face criminal prosecution at all levels, said Geoff Greenwood, a spokesman for Iowa attorney general’s office.
The servicers spent $8.67 billion on short sales, which occur when an underwater borrower sells their home for less than they owe on it, according to the monitor. Idled workers saddled with an underwater mortgage generally are more likely to restrict their job searches to the area around their home. Short sales are important because they make it easier for the unemployed to pursue jobs that require relocation.
The five mortgage servicers are required to provide a minimum of $17 billion in consumer relief, but the final tally could range as high as $32 billion, according to the attorney general. An additional $5 billion was paid to the states and the federal government.
Iowa Citizens for Community Improvement objects to the heavy reliance on short sales.
“Our impression of the settlement was that (it) was meant to keep people in their homes, which a short sale does not do,” ICCI spokesman Adam Mason said Wednesday.