Saturday, February 25, 2012 / by Justin Hoffmann
Why the mortgage settlement is a fair deal
Shaun Donovan is the Secretary of the U.S. Department of Housing and Urban Development.
Earlier this month, I was proud to join Attorney General Eric Holder, colleagues from across the federal government, and 49 state attorneys general to announce a historic mortgage servicing settlement on behalf of American homeowners -- one that addresses foreclosure processing violations by the nation's five largest mortgage servicers.
The $25 billion settlement provides important relief for one million homeowners. It forces the banks to reduce principal balances, refinance loans for "underwater" borrowers, and pay billions of dollars to states and consumers to provide other forms of relief.
Another component of the settlement that has received a lot of attention is the payments of about $2,000 it provides for an additional 750,000 homeowners.
Some have questioned whether $2,000 is enough redress for families who lost their homes improperly. The answer is obviously no.
But that isn't what these payments are about. Rather, they are about holding lenders and servicers accountable for how they treated a much larger group of homeowners -- their customers -- poorly.
There's understandably been a lot of focus on robo-signing and what happened to people who lost their homes improperly.
But when HUD initiated a large-scale review of the Federal Housing Administration's largest servicers in the summer of 2010, we found much more than bank employees signing thousands of foreclosure documents that they never verified or even bothered to read.
We also found that early on in the process, homeowners -- some of whom were only 30 days behind on their mortgage -- never even got a call from their lender to provide options that may have been available to them.
In other cases, we found that lenders did nothing when borrowers ran into trouble because they lost their job or had a medical crisis.
Over and over, what we saw was that folks who should not have gotten into trouble and who should have been able to get some help early on -- that was both good for them and good for the lender -- didn't get that help, help that in many cases, banks were legally obligated to provide.
These $2,000 payments will be made to families who suffered from these kinds of errors -- where borrowers were charged fees that they shouldn't have been or had dropped calls or lost paperwork when they sought help with their mortgages.
For families who suffered much deeper harm -- who may have been improperly foreclosed on and lost their homes and could therefore be owed hundreds of thousands of dollars in damages -- the settlement preserves their ability to get justice in two key ways.
First, it recognizes that the federal banking regulators have established a process through which these families can receive help by requesting a review of their file. If a borrower can document that they were improperly foreclosed on, they can receive every cent of the compensation they are entitled to through that process.
Second, the agreement preserves the right of homeowners to take their servicer to court. Indeed, if banks or other financial institutions broke the law or treated the families they served unfairly, they should pay the price -- and with this settlement they will.
Obviously, the pain of this crisis cannot be undone by writing a check and this settlement is just one of many important steps we in the Obama Administration have taken and will take to right the wrongs this housing crisis has inflicted on Americans. But by providing families with immediate relief and by preserving their rights under the law to hold their servicer accountable, this settlement represents an important step toward turning the page on an era of recklessness -- and ensuring that American families never have to face this kind of crisis again.
By Shaun Donovan