Experts react to the foreclosure settlement

at 03:11 PM ET, 02/09/2012

The Obama administration, together with a group of state attorneys general, announced a foreclosure fraud settlement of more than $25 billion Thursday morning. You can read more details about the deal here, but we also asked housing experts to weigh in. Here are their reactions:


(Associated Press)
John Taylor, President and CEO of the National Community Reinvestment Coalition

“Like many of these deals, the devil here is in the nuances of the legal terms, and the enforcement of the entire agreement. It is significant that only the parties to the agreement are releasing claims, leaving open efforts by individual home owners and other institutions to seek additional relief on this and other issues.

The biggest issue still facing home owners and the economy is the refusal of Fannie Mae and Freddie Mac to write down principal balances. The mortgage settlement does nothing to address that. And while the mortgage settlement will compel the lenders involved to make significant principal reductions, it will not reach every borrower who needs one. The government must continue to use every stick and carrot at its disposal to ensure that all home owners get the relief they deserve. This is a national economic priority.”

David Stevens, president and CEO of the Mortgage Bankers Association:

“These negotiations have been going on for more than a year, hanging over efforts to help borrowers and stabilize the housing and mortgage markets. Today’s announcement will help bring more certainty for borrowers, lenders, servicers and investors alike. And with certainty and confidence, we hope will come a stronger housing recovery.

I would caution, though, that, while a positive step, this will not be a panacea for all that ails housing. There are a number of other issues that we need to resolve. This includes striking the appropriate balance between consumer protection and access to affordable credit for qualified borrowers in the QM and QRM rulemakings, and facilitating the return of private capital to the mortgage market by comprehensively addressing the future of the GSEs and the government’s role in the secondary market.”

Elizabeth Warren, Democratic candidate for Senate in Massachusetts (news statement):

“Today’s settlement shows a significant commitment to helping struggling homeowners stay in their homes. But it needs to be the beginning, not the end, of efforts to hold the big banks accountable with meaningful penalties that demonstrate the rules and the law apply to everyone, no matter who your friends are or how many lobbyists and lawyers you can hire. Moving forward, further investigation and prosecution are needed to bring our long national mortgage nightmare to an end.”

Dean Baker, co-director at the Center for Economic and Policy Research:

“I’m not thrilled with the settlement, since it doesn’t accomplish much, but at least it doesn’t preclude further civil or criminal suits. In terms of the commitment of payments in the form of write-downs, we don’t have a clear counterfactual that allows us to gage how much would have been written down anyhow. We also have the peculiar situation where the banks get to pay the penalty with write-downs of debts to MBS investors.

The big plus is that the settlement does not preclude further legal action on securities fraud and other issues. [New York Attorney General Eric] Schneiderman and the other holdouts deserve credit for this.”

Ira Rheingold, director of the National Association of Consumer Advocates:

“There’s a number of pieces that are a good step forward for a lot of home owners but it doesn’t do nearly enough to solve the problem...the part that could end up being most impactful are the new standards for how people will be treated if they wind up in default, what kind of protocol banks have to follow if someone requests a loan modification. Going forward, I think that and the principal reductions will be the most meaningful parts of this. I’m hoping that these new standards, going forward, will help consumers understand and get loan modifications in the future. “

Karen Nussbaum, executive director of Working America:

“The $26 billion is not what we wanted. We were hoping for much more. This is like pocket change. So we hope this is a down payment, and we’re hoping to see more positive action coming out of this federal investigations unit. But only a handful of people are actually going to have their payments reduced, and the people who have already lost their homes will get $2,000. That doesn’t come close to fixing the problem...this just doesn’t add up to the kind of relief that people actually need to stay in their homes.”

Alyssa Katz, author of “Our Lot: How Real Estate Came to Own Us”:

“Anyone seeking justice for wronged borrowers out of the AGs’ mortgage settlement agreement is only going to find a glimmer of it there. (New York Attorney General Eric Schneiderman knows this — it’s why he and others fought to retain the right to pursue other action.) But that doesn’t diminish the value of the deal. For the first time, the major banks have agreed that they and their investors will share the financial pain that until now underwater homeowners have had to endure on their own. Banks that have fiercely resisted reducing principal owed on mortgages have now agreed to it, at least in some cases. They will have not just incentives, which on their own haven’t worked, but also obligations to alter mortgages for borrowers who are having trouble paying them.

The settlements’ billions will help salve pain, but in the longer term the most valuable piece of the deal may be the servicing standards — a binding set of rules to rein in big actors in a pitifully underregulated and widely corrupt industry. The question now is whether the settlement’s monitor is really in a position to enforce the provisions. And remember, the biggest companies handling mortgages today may not be the biggest ones tomorrow. Much of the servicing business could simply migrate to companies that are not parties to the deal.”

Jared Bernstein, former adviser to Vice President Joe Biden and senior fellow at the Center for Budget and Policy Priorities:

“Here are two reasons why I like the mortgage settlement agreement just announced: It’s not voluntary and it doesn’t require Congressional approval.

I’ll elaborate in a moment, but first, the caveats: It’s a drop in the bucket. There’s something like $700 billion out there in negative equity, and even with the leveraging — another attractive attribute of the way this should work — the $17 billion for preventing foreclosures ain’t gonna solve this.

But neither is any other single idea. Along with the other interventions policy makers are working on — ones I also hold some hope for — there’s clear potential to help distressed home owners and the macroeconomy.

Here’s what’s unique, useful and potentially important about the settlement: One of the main reasons the measures we’ve tried so far have underwhelmed is because they’ve all been voluntary from the perspective of lenders and servicers. No bank had to play along with HAMP or HARP. They had a choice of whether to respond to the incentives in the programs or not, and often it was “no thanks.” (By the way, that’s why I always liked the cramdown option — moves locus of action from solely being in the lenders’ hands.)

But the five banks named in the settlement must now set up processes to do refis and principal reductions. They don’t have a choice. And that’s a real advance.Who knows, with these processes in place, we can even dare to hope that the $17 billion, which is expected to be leveraged up to about twice that amount (i.e., banks are expected to provide a dollar of foreclosure prevention for $0.50 from the settlement fund) will be testing the waters for a deeper dive into mortgage modifications.”

Mike Konczal, fellow at the Roosevelt Institute:

“Follow the money in this deal, but also follow the process. There’s good reasons, both in theory* and empirically, to believe the “servicing” model the banks use to manage mortgage debt and foreclosures (created recently alongside the mortgage-backed security model), is destroying value for investors and homeowners through large numbers of unnecessary foreclosures. Why? Because of serious conflicts-of-interest and misaligned incentives between the banks managing the debts and investors and homeowners.

The robosigning and related scandals are a symptom of this broken process, and they should have lead the way to serious reform. Unless this model is changed in some fundamental ways, we’ll continue to have problems, including ones that make a mockery of court documents, property records, and our legal system. The settlement appears to allow the banks to hire their own monitors and is so similar to settlements at the state level that were broken by the banks in the past we have to ask: how can we expect anything to be different?”

 
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