Not everyone is cheering the foreclosure abuse settlement reached today with five of the nation's biggest banks. Activists say the suit does too little to stem the continued financial hemorrhage of the housing market and leaves most affected homeowners behind.
“For millions of Americans who lost their homes to foreclosure, for those who had to fight foreclosure actions and lost, and for those who are still struggling to pay their mortgage thanks to the illegal and immoral behavior of mortgage servicers, this settlement is only the first step toward holding the wrong-doers accountable,” said Rep. Dennis Kucinich in a statement released Thursday. “$26 billion is lot of money, but sadly it is not enough to compensate those millions of Americans for what they have endured. And for banks who regularly report profits in the billions, this penalty is just a cost of doing business.”
Under the $26 billion final settlement, five servicers – Bank of America, JP Morgan Chase, Citigroup, Ally Financial and Wells Fargo – will pay up for mortgage relief to one million homeowners and refinance borrowers into loans with lower interest rates.
The decision came after California and New York held out for a harsher settlement, but it has nonetheless been celebrated as a success.
“Today with the help of Democratic and Republican attorney generals from nearly every state in the country, we are about to take a major step of our own. We have reached a landmark settlement with the nation's largest banks that will speed relief to the hardest hit homeowners and some of the most abusive practices of the mortgage industry, and begin to turn the page on an era of recklessness that has left so much damage in its wake,” said President Barack Obama in a public statement.
So, where did it go wrong in the eyes of advocates?
Firstly, said Gordon Whitman, policy director at the Pacific Institute for Community Organizing (PICO) National Network and organizer with The Bottom Line, it will only help a handful of homeowners. Of the estimated four million Americans that have been foreclosed on since 2007 only one or two million will qualify for monetary reimbursement, which will be between $1,800 to $2,000.
Whitman and the PICO National Network, along with National People's Action, are part of The New Bottom Line, a coalition of community groups that have come out to say that the settlement reached Tuesday is not adequate.
“The payments to families who have lost their homes will be perceived by many people as a slap in the face,” said Whitman.
Secondly, of the $26 billion, only $1.5 will be put toward the cash penalties for homeowners.
“We've now set a price for forgeries and fabricating documents. It's $2000 per loan,” writes Yves Smith in Naked Capitalism.
The money put toward principal loan reduction, which would erase money that homeowners owe to banks on their mortgages, is also seen as inadequate.
“If you look at the … dollars in principal reduction, it's just a drop in the bucket,” said Whitman, of the $17 billion put toward reductions. “This is not enough money and it is not big enough.”
In addition, Smith predicts that most of the principal loan reductions “almost assuredly will come largely from mortgages owned by investors,” again bypassing individual homeowners.
And, then, there are the housing market issues upon which that the settlement does not touch,
The enforcement of the settlement “is a joke,” writes Smith, as “the first layer of supervision is the banks reporting on themselves.” It also fails to consider servicer errors in bankruptcy-related filings, servicer driver foreclosures and inflated charges, he notes.
Despite the disappointments, says Whitman, the settlement would have been even weaker had it not been for attorneys general pushing for a more thorough suit and the work of public pressure on the ground.
“It's really the first round of this fight. It's a significant breakthrough that four years into this crisis, for the first time, we are talking about principal reduction and getting debt off the shoulders of American families,” said Whitman. “From our perspective, that is the main thing. It took a lot of grassroots pressure and the work of attorney generals like Kamala Harris to even demand that principal reduction be central in any settlement.”
“The way forward is much more pressure and investigation and pressure on the big banks,” he continued, which “opens the pathway to get upwards of $300 billion in debt relief for American taxpayers. Wall Street wants to make this problem go away, but it won't go away.”
Until then, writes Smith, there is a lesson to be taken away from the settlement: “This settlement is yet another raw demonstration of who wields power in America, and it isn't you and me. It's bad enough to see these negotiations come to their predictable, sorry outcome. It adds insult to injury to see some try to depict it as a win for long suffering, still abused homeowners.”