The robo-signing settlement is helping the wrong borrowers
If you're a struggling homeowner who hoped to receive a windfall from the settlement of the robo-signing scandal, you might be disappointed to learn that while some relief has been granted, much of it has been in the form of short sales and deeds in lieu of foreclosure, not principal reductions or cold-hard cash.
"By rights, any money should be going to those who were wrongfully foreclosed upon or who suffered some form of servicing abuse, but that's now how this is playing out," says Keith Gumbinger, vice president of HSH.com. "Instead of finding borrowers wronged by the system and compensating them, the funds are instead being used to assist current homeowners -- people who may not have suffered any form of abuse or had any issue at all with the system."
Relief from March 1 to June 30
The robo relief doled out from March 1 to June 30 has been valued at more than $10.5 billion, or about $76,615 per borrower, on average, according to "First Take: Progress Report from the Monitor of the National Mortgage Settlement," an 83-page paper issued Aug. 29 by the Office of Mortgage Settlement Oversight in Raleigh, N.C. (The Office of Mortgage Settlement is an organization set up to aid Joseph A. Smith, the independent monitor who has been tasked with overseeing the entire robo settlement.)
While in all, 137,846 borrowers received "some type" of relief between March and June, according to the report, just over 54 percent of those borrowers were granted principal forgiveness only as part of a completed short sale or deed-in-lieu of foreclosure.
Translation: The government spent an average of $116,200 on principal reductions for people who couldn't remain in their homes. The other 46 percent received help from "various other consumer relief programs" in the form of mortgage forbearance, loan modification, refinancing, or extinguishment of a second loan. According to the report, the average amount of aid from these "other programs" averaged $18,840 per borrower.
Announced in February, the settlement required five banks -- Ally Financial/GMAC Mortgage, Bank of America, CitiMortgage, J.P. Morgan Chase and Wells Fargo -- to commit as much as $25 billion of relief to both current and former homeowners and to federal and state governments. The banks are also required to adopt 304 servicer rules to correct their practices and prevent another scandal.
The settlement resolves allegations that the banks' loan servicing operations routinely signed foreclosure documents without the presence of a notary and without knowing whether the facts in those documents were correct, according to a summary posted on the official NationalMortgageSettlement.com website. Every state except Oklahoma has opted into the settlement.
More mortgage relief promised
The banks have "moved forward to carry out the promises they made in the settlement," Smith, North Carolina's former banking commissioner and the settlement's monitor, said in a recent speech.
But he added that some caveats should accompany that $10.5 billion figure:
- The banks have continued the process since June 30
- The data was provided by the banks and has yet to be audited by the oversight office
- While the banks earn dollar-for-dollar credit toward the $25 billion goal for some types of relief, they get only pennies on the dollar credited toward the goal for other forms of aid. That means $10.5 billion is not as close to the $25 billion as the total simple math would suggest
"This proportional scoring arrangement is the box of salt with which you need to take these headline numbers. They are gross figures and will not move the needle the way it first appears they will," Smith said.
That could be good news for homeowners still hoping for help.
Not enough mortgage relief
Still, some critics have dismissed the entire relief process as "business as usual" at the banks due to the high proportion of short sales.
The California Reinvestment Coalition, a San Francisco-based association of nonprofit organizations and public agencies that advocates for equal access to financial services in low-income communities, said in a statement that the banks had made little progress in providing principal reductions and instead prioritized short sales, which "might work for some people, but are not clear victories."
Some of the money being paid to the states could also be used to help homeowners, but states have allocated sums to a wide variety of uses, including low-income housing, homeless shelters, housing counseling, legal aid, consumer protection, anti-blight efforts, wrongful foreclosure litigation, foreclosure rescue scam restitution and general funds, according to a chart prepared by the National Conference of State Legislatures.
The bottom line for homeowners is to pay attention to this advice, which is spelled out with capital letters on NationalMortgageSettlement.com: "If you receive a letter from your loan servicer offering settlement relief, DON'T THROW IT OUT. Please contact your servicer, so you do not miss out on this valuable opportunity."
More help from HSH.com
FHA Streamline Refinance offers are real and worth exploringFHA Streamline Refinancing is real, and so are the benefits. In a FHA streamline refinance transaction, you home isn't subject to an appraisal and there is no income, credit score or employment verification.
Can I refinance an FHA second property through HARP?You should know that lenders are free to do their own "overlays" as to which programs and borrower criteria they will write loans for.
Advantages of a FHA mortgage in 2016FHA loans have become more affordable in 2015, thanks to a drop in the annual mortgage insurance premium that the Federal Housing Administration charges.
10 metros where a home costs about $1,000/monthHSH.com identifies 10 metro areas where you can afford the principal, interest, taxes and insurance payments on a median-priced home for only around $1,000 per month.
HSH.com on the latest move by the Federal ReserveThe Federal Reserve concluded a meeting today with no change to the federal funds rate and no changes to other monetary policy tools.