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Sat November 23, 2013
What Have Mortgage Settlements Done For Homeowners Lately?
Originally published on Sun November 24, 2013 1:51 pm
This week, JPMorgan Chase agreed to a $13 billion settlement with the Justice Department over the sale of faulty mortgage securities that led to the financial crisis. It's the largest settlement with a single company in U.S. history.
From that settlement, $4 billion must go to help the millions of families who saw the values of their homes plummet and who still struggle to keep up with mortgage payments.
But this is not the first multibillion-dollar mortgage settlement. In 2012, the federal government reached a $25 billion agreement with five major banks, including JPMorgan. A portion of that money was also intended to help homeowners.
How far has that settlement come and what lessons does it have for future deals?
The banks' compliance with the 2012 settlement is still under review, but they report that more than 600,000 borrowers have received help — representing an average of $79,742 per borrower, according to the Office of Mortgage Settlement Oversight.
That may not be exact, but federal monitor Joseph Smith says that it's a "significant number of people." Smith will also oversee the implementation of Tuesday's JPMorgan Chase settlement.
Not everyone has been able to stay in their homes, though: A number of people have been relieved of debt by giving up their homes.
"I do think it is only fair to say that there are times when a short sale or a deed-in-lieu is the least worst option for a distressed borrower," Smith tells NPR's Arun Rath. Rather than being tied to the home, these people can walk away from the property and start over, he says.
"Keeping people in their homes was the most important and the predominant need or the predominant goal of the settlement — but it wasn't the only one," Smith says.
In addition to consumer relief, the 2012 settlement also established more than 300 "servicing standards" to change how banks do business with borrowers.
"The ultimate test of success is whether our work is resulting in better treatment of distressed borrowers," Smith said at the American Mortgage Conference in September.
Smith and his team are still working on reports of how far the banks have come in this area. Still, he says, there has been progress overall: "I think the trend of these settlements has been to address the problems that not only caused the meltdown but [those that] resulted from it."
Without all of the results in hand, there are already some lessons that have been learned, Smith says.
Criticisms of the national mortgage settlement have been taken into account with the new JPMorgan Chase settlement, he says. In addition to relief to keep people in their homes, for example, there will also be funding to reduce blight in areas with rundown and abandoned homes.
"I think we've gotten this off to a start, and I don't think anyone can say the federal working group the president set up doesn't pack a punch," says New York Attorney General Eric Schneiderman, a co-chair of the working group tasked with righting the wrongs of the foreclosure crisis.
Schneiderman was an architect of both the 2012 national mortgage settlement and this week's JPMorgan Chase settlement. He sees it as a victory.
"This is a huge win, and I think we're gonna be able to — with this settlement and others to follow — really boost the housing market in our state and get a lot of people out from under water and see housing prices starting to go up again, which is good for everybody," he says.
But housing advocate Bruce Marks of the Neighborhood Assistance Corporation of America says "the crisis is still there." The settlement should purely be about restitution for homeowners and the impacted communities, he says. Plus, there should be graver consequences for the banks, Marks says.
"The only way you're going to send a message to these banks in the future is if you do the criminal prosecution," he says.
While JPMorgan Chase did not admit any wrongdoing as part of this latest settlement, the agreement does leave the door open to future criminal prosecutions of bank executives.
As the country still grapples with the effects of the 2008 crisis, Congress is working on preventing the next one. New licensing rules limit who can give mortgages, and lawmakers are considering ways to change how the mortgage market is funded.
ARUN RATH, HOST:
It's ALL THINGS CONSIDERED from NPR West. I'm Arun Rath.
This week, JPMorgan Chase agreed to a $13 billion settlement with the Justice Department over the sale of faulty mortgage securities that led to the financial crisis. It's the largest settlement with a single company in U.S. history. Four billion dollars from that settlement must go to help the millions of families who saw the values of their homes plummet and who still struggle to keep up with mortgage payments.
But this is not the first multibillion-dollar mortgage settlement. In 2012, the federal government reached a $25 billion agreement with five major banks. A portion of that money was also supposed to help homeowners. But has that money actually helped those underwater on their homes who are still facing foreclosure? That's our cover story today.
(SOUNDBITE OF MUSIC)
RATH: Joseph Smith oversees that 2012 mortgage settlement as the federally appointed monitor. His job is to make sure banks meet the terms of the agreement, and he's going to do the same for the new agreement with JPMorgan Chase. And so I asked him, how much of the tens of billions of dollars already spent by banks has directly helped homeowners?
JOSEPH SMITH: The majority, in fact, more than a majority of the relief will be the kind of relief that we all agree will keep people in their homes.
RATH: With the assistance that's been received, do we have a sense of how many homeowners have been helped to stay where they are, to stay in their homes?
SMITH: Overall, the banks have claimed - and I haven't completed my crediting on this yet, and that includes short sales and others - over 600,000 families. I think the number, if you include refinancing and principal forgiveness, it will be less than that number. But it's a significant number of people.
RATH: Under the settlement, the banks, they can sell foreclosed-on homes at a loss or take homes in exchange for debt forgiveness. In both those cases, the homeowners' debt is forgiven, but they still lose their home. To what extent had the banks pursued those - these options?
SMITH: Well, if you're talking about either short sales or deeds in lieu of foreclosure - and that's what you are talking about, where people essentially give up their homes - that has been a significant number of the loans, which have been the subject of relief under the settlement. I do think it is only fair to say that there are times when a short sale or a deed in lieu is the least worst option for a distressed borrower.
If, for example, you or I have lost a job and need to move to another place to get a new job and we're stuck with a house that's underwater, the least worst option for you or me might well be to do a short sale, get out from under the loan, have the house sold and reboot, go back and start your life again. Keeping people in their homes was a - the most important and the predominant need or the predominant goal of the settlement, but it wasn't the only one.
RATH: Joe, you've just been handed a big pile of new work. You've been appointed to monitor this new settlement this week, the $13 billion agreement between JPMorgan Chase and the federal government. So what are you going to be looking for from the bank just right off the bat over the next six months?
SMITH: Well, there has not been an official announcement, but if there is one, I would be honored to do the work you're talking about. And I will say here is an example of where settlements we've had learned from each other. Some of the criticisms that were made of the National Mortgage Settlement, which I'm currently monitoring, have been reflected. And the people listened.
We will continue to have, as I understand it, relief directed towards keeping people in the homes, as we discussed, principal forgiveness, in particular. But there's also going to be an explicit requirement to extend what's called blight relief, which is put people in new housing or fixed-up housing, will address the needs of a lot of our urban areas in particular. So I'm very happy about that.
RATH: Joe, do you feel at this point that these settlements, that they're making any progress in terms of righting the wrongs of the excesses of - that led to the collapse?
SMITH: Well, the JPMorgan Chase-U.S. Justice settlement addresses, as I understand it, origination issues in the mortgage market. So I think that is clearly a step forward in that regard. The settlement I'm working on now addresses some of the aftermath of the meltdown, which was how distressed borrowers were treated by people who were trying to collect money from them. And I think we've made real progress there.
And so the short answer to your question, I guess is, yes. I mean, I think these - the trend of these settlements has been to address the problems that not only caused the meltdown and that resulted from it. So I'm pretty happy about that.
RATH: Joseph Smith. He'll be monitoring the JPMorgan settlement. Eric Schneiderman is the attorney general of New York. He's also a co-chair of the President's Residential Mortgage-Backed Securities working group. That's the group tasked with righting the wrongs of the foreclosure crisis. Schneiderman was an architect of both the 2012 National Mortgage Settlement and this week's JPMorgan Chase settlement. He sees it as a victory.
ERIC SCHNEIDERMAN: This is a huge win. And it's - I think we're going to be able to, with this settlement and others to follow, really boost the housing market in our state and get a lot of people out from underwater and see housing prices start to go up again, which is good for everybody.
RATH: But he says this week's settlement is just the beginning.
SCHNEIDERMAN: There are a lot of other lawsuits that have already been filed, and you will see more complaints filed in the months ahead. But the banks want to settle existing cases, and they want to eliminate the possibility that investigations that are now underway that haven't led to lawsuits can be discontinued.
So there's a tremendous incentive for the banks to do what Chase has done. I think we've gotten this off to a start. And I don't think anyone can say that the federal working group that the president set up doesn't pack a big punch.
RATH: Bruce Marks is the CEO of the Neighborhood Assistance Corporation of America, a national housing advocacy group.
BRUCE MARKS: When you hear these big numbers in these settlements, it's really not real for the most part because banks are doing this in the normal course of business.
RATH: You know, we've had people telling us, including the New York state attorney general, that these settlements, they're working. They're basically - they're doing a good job to fix this problem.
MARKS: You know, they really need to go - get on the ground. I mean, because it's really not working out there. You're not seeing the kind of principal reductions and re-affordable payments that need to happen. And there's an easy way to do it. What they need to do is they've got to say: Banks, you need to do what you should be doing in your normal course of business.
And then when a homeowner is denied a modification, then use the money to turn a negative into a positive. And they're not doing that, and they're letting the banks play with the money to move it from one place to another without really the benefit going to the homeowner.
RATH: Bruce, how should this money be spent? What would be the right way to go about this?
MARKS: It should be restitution for the homeowners, and it should be restitution for the communities that have been impacted. And that's not what's happening. But the positive thing about the agreement, which I think needs to be reinforced, is that the only way you're going to send a message to these banks in the future is if you do the criminal prosecution.
RATH: Marks says the government needs to prosecute those who sold the fraudulent mortgages in the first place.
MARKS: And this agreement, it's really interesting where you've got Chase cooperating to really prosecute the Bear Stearns executives, the Washington Mutual executives. So I think there's a lot of good stuff in here, but the problem is they've also got to really enforce it that this is restitution that has to happen, and then they have to make this money real that says: We're only going to use this, you know, $13 billion when it can really provide a real benefit for the homeowners.
RATH: And while JPMorgan Chase did not admit any wrongdoing as part of the latest settlement, the agreement does leave the door open to future criminal prosecutions of bank executives. As the country still grapples with the effects of the 2008 crisis, Congress is working on preventing the next one. New licensing rules limit who can give mortgages, and lawmakers are considering ways to change how the mortgage market is funded.
(SOUNDBITE OF MUSIC) Transcript provided by NPR, Copyright NPR.