“As long as homeowners can still go after banks, I think that’s okay,” Rheingold said. “The most important part of the settlement for me is that we will have rules about how servicers interact with consumers. In my mind, the actual check written out is small solace to people who have lost their homes.”
Rheingold said the agreement has its flaws: It would not mandate principle reduction for mortgages that are owned by private investors or by Fannie Mae and Freddie Mac, for example, and it’s unclear how the settlement’s homeowner protections would be enforced.
“It’s not going to solve all the problems we have right now,” he said. “There’s a long way to go still to undo all the damage that was done.”
Other legal experts were cautious in their optimism, pointing to the 2008 settlement with Countrywide, which some say failed to prevent mass foreclosures. Countrywide became one of the nation’s biggest subprime lenders. Officials said the firm’s loan officers and mortgage brokers would change a loan’s interest rate and other fees regardless of a borrower’s credit rating and that the company targeted black and Hispanic homebuyers for especially risky subprime loans. Bank of America bought the mortgage lender just before the practices were discovered.
“I haven’t seen the final agreement, but my basic concerns is will the money trickle down to homeowners?” said Dustin Zacks, an attorney with Ice Legal in Florida. “I have serious doubts that it will. The previous suit between Countrywide and the California Attorney General --I have yet to meet a single homeowner who has benefited from that
John Taylor, head of the National Community Reinvestment Coalition, said that the agreement would provide substantial foreclosure relief when taken together with proposals for mortgage relief by the Obama administration.
Last week, President Obama urged Congress to pass a measure allowing homeowners who are current in their mortgages to refinance at today’s record-low interest rates. In January, the president relaxed rules on a federal loan modification program for underwater homeowners.
“The more initiatives there are, the more likely it is that we’re going to nip this foreclosure crisis in the bud,” Taylor said. “Homes that continue to lose value just means more loss of equity, less consumer spending and less hiring…and that has a pervasive effect on our economy.”
Officials from the Department of Housing and Urban Development and the Justice Department, along with the state attorneys general leading the settlement talks, insist that the deal would provide immediate and much-needed relief to homeowners and improve the broken mortgage servicing system.
They have tapped North Carolina Bank Commissioner Joseph Smith to serve as a full-time monitor to ensure that the banks abide by the terms of the settlement. Obama nominated Smith in November 2010 to lead the Federal Housing Finance Agency, which oversees government-backed mortgage giants Fannie Mae and Freddie Mac. Smith’s nomination failed after Senate Republicans refused to confirm him.
The new position will be paid for by the banks under the terms of the pending settlement.