Banks Balk on Relief to Struggling Families, Report Finds
Some of the nation's largest banks appear to be evading their mandate to provide relief to those most gravely affected by the nationwide housing crisis, according to a court-ordered progress report released Thursday.
The $25 billion mortgage settlement struck last March required that 30 percent of relief to homeowners come in the form of first mortgage principal reduction. The settlement was the resolution to a suit accusing the nation's most prominent banks of costing millions of Americans their homes through abusive mortgage practices, including mortgage fraud and mismanagement allegations. But in the nine months after the settlement was struck, fewer than 50,000 people of the roughly 1 million who qualify for principal reductions have received them.
A federal court appointed former North Carolina banking commissioner Joseph Smith to oversee the settlement and report on its progress. Using data reported from the banks—JPMorgan Chase, Bank of America, Wells Fargo, Citigroup and Ally Financial—he found banks are favoring short sales, which require people to leave their property, over other forms of relief. More than 4 million families have lost their homes since 2007.
From The Huffington Post:
Homeowner advocates said the report also indicates that the five settling banks are targeting the most valuable loans for principal reduction, rather than those in low-income communities. The average amount of first mortgage principal reduction granted was nearly $130,000 -- just $40,000 or so less than the median home sale price for January in the U.S.
At Bank of America, first-lien forgiveness averaged $160,000 of first mortgage principal reduction per loan. Does that large figure mean that the bank has favored borrowers in high-cost areas like Southern California or New York? Does it suggest that the bank is more likely to forgive the debt on an expensive home than on one in a downtrodden area like Detroit or Cleveland, where home prices often don't climb above $50,000?
Smith said he hasn't vetted the data yet, but for homeowner advocates, not knowing the answer to those questions is the biggest frustration.