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Mortgage settlement: not enough relief

Despite deal reached with banks, too many Maryland families are still losing their homes

By Marceline White

1:46 PM EST, December 11, 2012

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Almost a year after five big banks signed a $25 billion national mortgage settlement with 49 state attorneys general last February, too few families are getting relief, too many of those getting some help continue to lose their homes to short sales, and we still don't have the data we need to know whether the communities hit hardest by the foreclosure crisis are getting the help they need. To make the settlement fulfill its promise, the banks need to step up the pace of principal reductions, and federal regulators need to do much more to help working families save their homes.

Figures released by the office of the monitor of the national settlement in November show that 6,933 Maryland families received help under the settlement between March and September, with relief averaging $79,721 per family. Yet in those same months, 64,275 Maryland families received notices of intent to foreclose on their homes, including more than 24,800 in September alone.

At the same time, few of the families helped to date have won the kind of principal-reduction loan modifications that enable them to save their homes. The settlement stipulates that 60 percent of the relief banks offer must be first- and second-lien loan modifications and gives the banks incentives to provide such relief in the agreement's first year, But about 3.5 times as many Marylanders helped under the settlement have lost their homes to short sales (35 percent) as have won principal reductions on first-lien mortgages (10 percent), and short sales account for about 48 percent of the total value of relief in Maryland (and principal reductions only 15 percent). Nationally, the gap is even larger, with five times as many borrowers getting relief undergoing short sales (40 percent) as winning principal reductions (8 percent).

In some cases, short sales can help provide a dignified exit for families who just can't afford to stay in their homes. Yet families still lose their homes and communities their neighbors.

The slow pace of principal-reduction loan modifications not only hurts families facing foreclosure but stands in the way of the recovery of the housing market and the national economy from the economic crisis. With more than 11 million homeowners thought to be more than $600 billion underwater on their mortgages, many economists believe consumer spending won't really recover until many more homeowners can get out from under their upside-down mortgages.

The data also reveal troubling discrepancies in the banks' relief efforts. Wells Fargo, for instance, despite owning more than 20 percent of Maryland's mortgages, badly trails some of the other banks in homeowners helped, amount of relief offered and principal reductions completed. It has just 159 trial modifications under way in Maryland, while Bank of America reports 851. While all the banks in the settlement can and should do more, Wells Fargo has the most work to do to help its very large portfolio of homeowners in distress.

The value of the settlement also continues to be limited because Edward DeMarco, the acting director of the Federal Housing Finance Agency, rejects all principal reductions on loans owned by Fannie Mae and Freddie Mac. The FHFA holds 15.7 percent of all home loans in Maryland and owns or guarantees more than 60 percent of home loans nationally. Mr. DeMarco's intransigence prevents those homeowners from winning principal reductions even if the bank that services their loans for the FHFA is part of the mortgage settlement. For months, the Maryland Consumer Rights Coalition has been calling on President Barack Obama to replace Mr. DeMarco with an FHFA director who supports responsible principal reductions. We're still waiting for the president to act.

Housing activists and counselors also fear that settlement relief has focused on a relatively small number of high-dollar modifications in wealthier areas, while hard-hit parts of Maryland like Prince George's County, Baltimore City and Baltimore County are getting little aid. But we can't be certain what aid is reaching such communities because the banks aren't required to report how much settlement relief is reaching each ZIP Code or even each county.

On Nov. 6, our organization and other leading Maryland fair-housing activists asked National Settlement Monitor Joseph Smith to require the banks to provide ZIP Code-level data on where relief is going. More than 295 Marylanders have signed the Maryland Consumer Rights Coalition's petition calling for these data. The coalition is still waiting for a response from the settlement monitor's office.

Let's remember that banks aren't providing the help required under the settlement out of goodwill; they are doing so as part of a legal settlement. The catalyst for this settlement was allegations that banks were illegally robo-signing foreclosure documents. Banks also engaged in risky lending practices that earned them enormous profits while placing homeowners in unsustainable loans, draining pension funds and deceiving investors. Regulators were, at best, asleep at the wheel while all these unscrupulous practices were taking place.

The results have been devastating for our economy. Banks privatized gains and socialized risks, reaping enormous gains for themselves while wreaking havoc on our economy. It is time for banks to put their money (and our bailout money) where their rhetoric is and actively work to keep families in their homes.

Marceline White is executive director of the Maryland Consumer Rights Coalition (MCRC), a statewide advocacy group that advances and protects justice and fairness for Maryland consumers. Her email is marceline@marylandconsumers.org.

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