May 21, 2013
Will Mortgage Settlement Avoid Repeating Obama’s Foreclosure Failures?
Posted on Feb 11, 2012
By Paul Kiel, ProPublica
This piece originally appeared at ProPublica.
On February 9th, administration officials stood alongside state attorneys general to announce a $25 billion mortgage settlement. It was reminiscent of a big announcement by administration officials three Februarys ago involving an even bigger number: $50 billion. That money was supposed to go to the administration’s signature mortgage modification program, which eventually became HAMP.
Three years later, HAMP (the Home Affordable Modification Program) is widely considered a failure. That failure provides key context to [Thursday’s] announcement.
According to the state attorneys general and the administration, a major selling point of the new settlement is that it won’t repeat HAMP’s mistakes. This deal, they say, is different.
“If people are eligible for a loan modification, the banks won’t screw up those decisions anymore,” said Iowa Attorney General Tom Miller.
As we’ve reported extensively over the past several years, homeowners seeking to avoid foreclosure by gaining a loan modification have often been frustrated by banks’ errors and delays. In the worst cases, the banks’ shoddy mortgage servicing has led to wrongful foreclosures. The errors have sometimes continued even after homeowners got an elusive modification.
When HAMP was launched, it came with the promise that mortgage servicers would have to abide by clear rules. The handbook laying out these rules now approaches 200 pages. But as we’ve detailed, enforcement of those rules has been lacking.
According to the state attorneys general, the settlement directly addresses that. The five big servicers—Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial (formerly GMAC)— that will sign on to the not-quite-finalized deal have agreed to follow a raft of new rules. Some of these rules, like how quickly a bank must respond to a homeowner’s completed modification application, come straight from HAMP.
What’s different this time, they say, is that there are clear consequences for rule-breaking. But plenty of questions remain, and only time will tell if the latest promises of mortgage-servicer accountability will be kept.
“The big picture is that these new rules are only good if servicers follow them,” said Alys Cohen of the National Consumer Law Center. “Enforcement will really matter.”
As critics like Firedoglake blogger David Dayen have pointed out, the new system relies to some extent on “self-assessments” by the banks to identify violations of the new rules. But Miller, the Iowa attorney general, notes that consumers will be able to complain to their state’s attorney general, who will make sure their complaints are heard.
The settlement does create a “monitor” who will have the power to impose penalties. The administration says a bank could be fined up to $1 million per violation and up to $5 million for repeat violations. But the details released so far don’t show how violations will be applied or counted. (If thousands of homeowners, for instance, have been wrongly denied modifications, will that be counted as one violation or thousands?)
HAMP came with no penalties for participating mortgage servicers that broke the rules. It was only in the past several months that the Treasury Department decided to address servicer noncompliance—by temporarily withholding the program’s subsidy payments. (As for the millions of dollars in incentives that Bank of America, JPMorgan Chase and the other servicers were paid over the previous years, they get to keep that.)
The settlement is not only supposed to have more sticks than HAMP, it’s also a chance for the administration to breathe life back into the old program. Treasury recently made major revisions to HAMP to allow more homeowners to qualify for modifications.
“The extension and expansion of HAMP are designed to be complementary to the settlement,” said Treasury spokeswoman Andrea Risotto.
For instance, the program was set to end at the end of 2012 but now will accept new homeowners until the end of 2013. (The banks will operate under the umbrella of the settlement through 2014 or so.) In addition, Treasury has broadened some of the criteria to make it easier to qualify.
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