Mortgage deal small step in refinancing: Mortgage servicers agree to reimburse after fraudulent foreclosures
Springfield News Sun - February 27, 2012
Ohio’s participation in a roughly $25 billion government settlement agreement over alleged mortgage fraud has garnered a mix of skepticism and applause in a state still battling widespread foreclosures.
The settlement between state and federal regulators and the nation’s five biggest mortgage servicers would put cash in the pockets of victims of improper foreclosures and lower mortgage payments for borrowers who owe more than their houses are worth.
The settlement would also require the banks — Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial — to implement new mortgage loan servicing standards to prevent further abuses.
Still, some local residents who might benefit from the settlement are leery of the promised reforms based on their previous experiences with the banks, which already offer loan modifications and other forms of mortgage relief for distressed borrowers.
“I would love to get a home loan modification, but Bank of America absolutely does not want to work with us one bit on anything,” said John Woxman of Kettering. Woxman sought to lower his mortgage payments after he lost his job when his employer, Skelton Sports in West Carrollton, shut down.
Proving economic hardship was a prerequisite for Woxman and his wife, Tina, to secure a loan modification. But Woxman, who’s still struggling to make his $1,200 a month mortgage payment with his unemployment insurance benefits and his wife’s income as a part-time manicurist, said the bank would only look at his tax returns for the two years before he was unemployed.
“Last year, I was completely out of work all year long, but they don’t want to go by that. They want to go by the years when I was working,” Woxman said. “That simply doesn’t show our hardship.”
He plans to contact the bank again to seek relief under the national settlement, which would apply to borrowers whose mortgages were serviced by the banks between Jan. 1, 2008 and Dec. 31, 2011. But he’s doubtful.
“I don’t think anything will change, especially if they’re leaving everybody that’s at fault to do the right thing on their own,” Woxman said. “They should have been doing the right thing on their own from the start.”
The settlement would hold the banks accountable for unscrupulous practices. But the banks did not acknowledge any wrongdoing in the settlement, which is still subject to final approval by regulators.
Some consumer advocates and housing activists are also wary of the settlement because it allows the banks to determine who qualifies for relief and when and how eligible borrowers receive it — although their decisions would be subject to review by regulators.
And, they say, there’s little incentive for the banks to rush to the aid of struggling homeowners by writing down mortgage debt that would never be repaid.
Most of the settlement, about $20 billion, would go toward reducing principal balances and refinancing borrowers with negative equity in their homes, in addition to other loan modifications. In Ohio, the banks have committed about $194 million of the state’s share of the settlement for such mortgage relief.
But the banks would have up to three years to fulfill those obligations.
“One of the concerns that we have is how fast are people going to get part of this settlement,” said David Rothstein, a project director at the nonprofit research and consumer advocacy group, Policy Matters Ohio. “This has dragged on long enough.”
Rothstein is also concerned that the lack of a single point of contact to facilitate the settlement could bog down the process, just as lapses in communication and mishandled paperwork led to the original mortgage abuses.
“We’ve spoken with families who have tried trial modifications, for example, for three months, then don’t hear anything for another three months and have to start all over again,” Rothstein said. “They’re passed around from one person to the next. That process just has got to pick up speed … to help people in need now.”
Ohio among top 10 foreclosure states
Last year, more than 85,483 Ohioans were in some stage of foreclosure, ranking the state among the top 10 for foreclosure activity, according to California-based market tracker, RealtyTrac. In addition, the firm estimates more than 544,000 Ohio mortgage borrowers are seriously underwater, meaning they owe at least 25 percent more on their mortgage than their property is worth.
But the settlement would cover only a small fraction of those borrowers because most Ohio homeowners have mortgages owned by Fannie Mae and Freddie Mac, which control about half of all mortgages in the U.S.
“The big guys really don’t have as much market share here as they do in other parts of the country,” said James Thurston, a spokesman for the Ohio Bankers League, referring to the banks in the settlement. He said it would be difficult to determine how many borrowers the settlement will help in Ohio because the banks are only required to report deposits by state, not loans.
Success in reaching even the relative handful of homeowners who might benefit from the settlement will depend on how effectively it’s monitored and enforced, said Cindy Flaherty, director of homeownership at the Ohio Housing Finance Agency.
“That’s a continual issue,” Flaherty said. “There are aspects of the process that aren’t clearly defined yet, and that’s a concern.”
The 49 state attorneys general who signed onto the foreclosure settlement, including Ohio Attorney General Mike DeWine, would have the authority to seek penalties of up to $5 million for noncompliance.
But the states would not directly supervise the settlement process.
The banks would be responsible for compiling their initial compliance reports, which would then be sent to an independent outside monitor, Joseph Smith, who stepped down last week as the North Carolina Commissioner of Banks to assume his new role. Smith would then report to the state attorneys general.
Despite its shortcomings, most experts agree the settlement is a step in the right direction.
In addition to direct relief for homeowners, the settlement also provides for payments to states to use as they choose to stabilize the housing market. Ohio has been awarded $97 million, most of which will be used to tear down blighted houses in select neighborhoods. There are at least 100,000 vacant and abandoned properties in Ohio — including 14,000 in Dayton — in need of immediate demolition, DeWine said in announcing the settlement.
Perhaps the settlement’s biggest impact has been creating a model for the rest of the industry to follow, said Flaherty.
Despite pressure from Congress and the Obama administration, mortgage giants Fannie and Freddie have so far refused to reduce principal balances for underwater borrowers, which many economists agree is the most effective way to make mortgages more affordable and keep people in their homes.
“We will not see large-scale principal curtailment until their guidelines change,” Flaherty said, referring to Fannie and Freddie. “That’s why we are pleased that the settlement has created at least a crack in the wall, and we’re going to find every way we can to make that crack bigger.”
For some borrowers, however, it’s already too late. They’ve lost their homes as a result of shady foreclosure practices, including so-called robo-signings in which foreclosures were not reviewed individually as required by law before they were processed.
The settlement sets aside about $5 billion, including about $45 million in Ohio, for payments to borrowers. The estimated payouts of between $1,500 and $2,000 per household have been decried as a slap in the face to those who lost their homes to unscrupulous bankers.
The payouts offer a measure of restitution to a number of homeowners who otherwise would have been written off bank ledgers, said Willie Harris, director of housing counseling at the Community Action Partnership in the Dayton area.