Mort­gage set­tle­ment re­views are mixed

Agree­ment not help­ing those who need it most, ad­vo­cates say.

Austin American-Statesman - - BUSINESS - By Jamie Smith Hop­kins Baltimore Sun

Deatrice Besong says it feels like win­ning the lot­tery: Her mort­gage ser­vicer re­cently agreed to re­duce her loan by $249,000 next year, sav­ing her $300 a month and eras­ing the debt over­hang that has her ow­ing far more than her house is worth.

“It’s a great feel­ing — it’s a feel­ing of re­lief,” said Besong, who lives in Up­per Marl­boro, Md

Her prin­ci­pal re­duc­tion comes courtesy of the na­tional mort­gage set­tle­ment, a deal struck by state at­tor­neys gen­eral, the fed­eral government and the coun­try’s five largest loan ser­vicers af­ter al­le­ga­tions of wide­spread ser­vic­ing and fore­clo­sure mis­deeds. The com­pa­nies are legally ob­li­gated to pro­vide $25 bil­lion in aid, in­clud­ing for­given debt, and bet­ter cus­tomer ser­vice.

But 10 months af­ter the newly an­nounced set­tle­ment was hailed as a step in re­form­ing a bro­ken sys­tem, the re­views from homeowners and hous­ing ad­vo­cates are mixed. Some say the re­sults are not what they’d hoped.

Much of the aid given re­lates to deals — such as short sales — in which for­given debt or other as­sis­tance came with the re­quire­ment to move out. And some con­sumer ad­vo­cates say homeowners are still hav­ing trou­ble get­ting help they ap­pear to qual­ify for.

“It should be a ba­sic thing to have one or two peo­ple who are re­spon­sive to a con­sumer and can keep track of their doc­u­ments,” said Marce­line White, ex­ec­u­tive di­rec­tor of the Mary­land Con­sumer Rights Coali­tion.

“The fact that this isn’t work­ing yet is prob­lem­atic, to say the least, and really con­tra­dic­tory to the in­ten­tion of the set­tle­ment,” she said.

Mary­land At­tor­ney Gen­eral Dou­glas Gansler said the ser­vic­ing stan­dards set down by the set­tle­ment are still new, and he ex­pects “bet­ter con­form­ity” with time.

“Is it per­fect? Ab­so­lutely not,” he said. “Th­ese were banks that were prey­ing upon peo­ple in the first place, and they were will­ing to use ro­bosign­ing to throw peo­ple out of their homes. It’s not as if they’ve sud­denly found the light. Some are bet­ter than oth­ers. But look, by and large, the new ser­vic­ing stan­dards have been very well-uti­lized and re­ceived.”

Gansler also said that more prin­ci­pal re­duc­tions are in the works — the set­tle­ment re­quires that a greater por­tion of aid go to re­duc­ing prin­ci­pal than to short sales. But he doesn’t con­sider short sales a bad thing.

“It leaves peo­ple with­out con­sumer debt, it gets houses oc­cu­pied in neigh­bor­hoods,

bol­sters prices in those neigh­bor­hoods,” Gansler said.

From the start, hous­ing groups warned against see­ing the set­tle­ment as a cure-all be­cause many homeowners are ex­cluded.

Most ob­vi­ous are those whose loans aren’t owned or ser­viced by the banks on the list: Bank of Amer­ica, Wells Fargo, JPMor­gan Chase, Cit­i­group and Ally Fi­nan­cial, the former GMAC. Be­yond that, a large chunk of bor­row­ers with those ser­vicers are cut off from ev­ery­thing but the prom­ise of bet­ter cus­tomer ser­vice.

The many loans owned or guar­an­teed by Fan­nie Mae or Fred­die Mac aren’t el­i­gi­ble for prin­ci­pal re­duc­tion.

And though there’s no such ban for bor­row­ers with loans in­sured by the Fed­eral Hous­ing Ad­min­is­tra­tion, it’s un­likely the banks will tar­get FHA mort­gages for aid be­cause that would bring a lower level of set­tle­ment credit than re­duc­tions to the loans the banks them­selves own.

Mean­while, Fan­nie, Fred­die and FHA bor­row­ers are all blocked from set­tle­ment re­fi­nanc­ing — for homeowners un­der­wa­ter on their loans — be­cause that re­lief is only for the bankowned loans.

“Fan­nie, Fred­die, FHA, that’s the vast ma­jor­ity of loans we work on,” said Dan El­lis, ex­ec­u­tive di­rec­tor of Neigh­bor­hood Hous­ing Ser­vices of Baltimore.

On top of all that, homeowners who have any mort­gage debt for­given af­ter this month will have to pay fed­eral taxes on the amount as if it were in­come. That is, un­less Congress ex­tends a pro­vi­sion to waive such pay­ments for mort­gage debts of $2 mil­lion or less.

Bank­ing, real es­tate and con­sumer groups are press­ing for the move, warn­ing that fi­nan­cially strapped homeowners will be hard-pressed to ac­cept mort­gage aid that comes with a big tax bill.

“Congress should make an ex­ten­sion of this law a top pri­or­ity in or­der to help as many homeowners fac­ing fore­clo­sure as pos­si­ble,” said the heads of the Fi­nan­cial Ser­vices Roundtable, the Cen­ter for Re­spon­si­ble Lend­ing and the Hous­ing Pol­icy Coun­cil in joint let­ters to Congress.

Owen Jarvis, an at­tor­ney who works on fore­clo­sure preven­tion at St. Am­brose Hous­ing Aid Cen­ter in Baltimore, said the set­tle­ment re­sults aren’t per­fect but still strike him as praise­wor­thy.

“I think over­all ... it’s a fan­tas­tic ben­e­fit for homeowners,” he said.

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