Deatrice S. Besong said 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 49 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 much improved customer service.
(Oklahoma did not participate in the national settlement. State Attorney General Scott Pruitt negotiated a separate agreement with Bank of America, Citigroup, JPMorgan Chase, Wells Fargo and GMAC.)
But 10 months after the newly announced national settlement was hailed as a major 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.”
Maryland Attorney General Douglas F. 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 robo-signing 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 (but potentially not a lower cost) 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 bank-owned 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, echoing many other local foreclosure-prevention groups.
On top of all that, homeowners who have any mortgage debt forgiven after the end of 2012 will have to pay federal taxes on the amount as if it were income. That is, unless Congress extends a temporary 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 House and Senate leaders.
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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