Monday, February 13, 2012

A Few Loopholes

It wasn't exactly a sell-out, but it was no triumph for consumers or homeowners, either.

Though we await details of the recent agreement among the Justice Department, 49 state Attorneys General (Oklahoma cut its own bank-friendly deal), and five huge banks, we do know that the total amounts to $25 billion.     Apparently, "some $17 billion of that would go toward writing down mortgage principal for an estimated 850,000 troubled borrowers, $3 billion could go toward restitution payments of $1,500-2,000 each to borrowers who lost their homes to foreclosure, and the rest could go to state funds for foreclosure relief."      

The Administration-friendly Center for American Progress reports "the deal protects banks from state and federal lawsuits pertaining to some foreclosure fraud abuses, including robo-signing," the lawsuit lodged by New York State Attorney General Eric Schneiderman for mortgage fraud, and the right of individual homeowners to sue.

Within hours of announcement of the settlement, several housing experts expressed misgivings about the settlement, including the paltry sums which will actually go to homeowners who are underwater.    Dean Baker concluded

It would have been useful if the attorneys general had pushed for a settlement that gave enforceable rights to homeowners facing foreclosure. For example, if they had required servicers to give every foreclosed homeowner the right to stay in their home paying the market rent for five years following a foreclosure, millions of homeowners would have immediately been given housing security they currently lack. And, they could enforce this one themselves rather than relying on the goodwill of the bank or government overseers.

One estimate has it that financial institutions, having held off on foreclosures during the negotiations, are likely to initiate approximately 1 million foreclosures this year and according to a California-based insurance provider, "The homes in the foreclosure pipeline are four times the REO [current bank-
owned properties], and yesterday's settlement is going to accelerate the seizure process. They have a total green light to seize those homes that are in the foreclosure process."

And now, another problem.     On February 9 we learned

Wisconsin will use a chunk of its $140 million share of a national settlement over foreclosure and mortgage-servicing abuses to help the state budget rather than assist troubled homeowners, Gov. Scott Walker and state Attorney General J.B. Van Hollen said Thursday.

Walker and Van Hollen said the majority of the settlement amount earmarked to Wisconsin under a $25 billion proposed nationwide agreement announced Thursday still would go to aid consumers in Milwaukee and other communities struggling with the specter of home foreclosure.

But of a $31.6 million payment coming directly to the state government, most of that money - $25.6 million - will go to help close a budget shortfall revealed in newly released state projections. Van Hollen, whose office said he has the legal authority over the money, made the decision in consultation with Walker.

It's hard to understand why the Administration didn't see this  coming.    Wait- they did:    

Even before state attorneys general put the final touches on a $25 billion settlement with five major banks over improper mortgage practices on Thursday (February 9), Missouri Governor Jay Nixon announced that he wanted to use some of his state’s proceeds for an unexpected purpose: to help fund higher education.    

Colleges and universities in Missouri have gone through several rounds of painful budget cuts in recent years, and Nixon, a Democrat, proposed using $40 million from the state’s share of the settlement to help offset the 12.5 percent cut to higher education that he initially proposed in his budget this year, The Kansas City Star reported
. Republicans who control the state legislature expressed support for the plan, with the chair of a key budget committee saying he was “glad the governor is finally starting to listen to legislators and the people of this state who make education a priority.”

But while Nixon and Missouri lawmakers may agree on the need to put mortgage settlement dollars into higher education, the decision actually belongs to Attorney General Chris Koster, who signed onto the agreement with the banks and who, under the terms of the deal, has significant leeway to determine how Missouri’s share of the money will be spent. Koster, a Democrat, told reporters on Thursday that he agrees with the governor’s call for more higher education funding and will transfer the $40 million Nixon has requested into the general fund, citing the“severe budget shortages” the state faces.

Missouri has other means for funding education, including suspending tax credits, which the state hands out "like legislative candy along a parade route."      Instead, homeowners are shortchanged because money taken out of the fund would have been used, as David Dayen notes, for legal aid for foreclosure victims or anti-blight programs to improve neighborhoods with vacant properties.     T

The Justice Department needs to step in, lest the Wisconsin/Missouri model be repeated throughout the nation and undermine the integrity of a settlement intended to help stabilize the housing market.

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