A coterie of Illinois housing advocates say a foreclosure settlement made with five big banks does not do enough to hurt the financial institutions or help struggling homeowners.
“The punishment doesn’t fit the crime,” argues Kristi Stanford, spokeswoman from the regional community advocacy group IIRON.
Stanford and other groups like Northside Power wanted the $25 billion deal to be something closer to $300 billion.
But some advocates claim that the national deal reached yesterday could give unprecedented help to homeowners – namely the $10 billion set aside to reduce mortgage's principals.
“This is the first time that servicers will be required to include principal reductions. Servicers have been very reluctant to use them,” says Tom Feltner, vice-president of the Woodstock Institute, a research and advocacy group.
“I definitely applaud [Illinois Attorney General] Lisa Madigan for ensuring that principal reductions are part of the settlement,” Feltner says.
Federal Housing and Urban Development, 49 states attorneys general (every state but Oklahoma), and five mortgage servicers – Bank of America, JPMorgan Chase, Wells Fargo, Citibank, and Ally Financial – reached a deal Thursday where the servicers give HUD $25 billion and HUD distributes this money to the states, including $1.5 billion to Illinois.
The deal came after more than a year of negotiations with the banks, which were accused of accelerating foreclosures through careless paperwork, including “robo-signing” documents.
Besides the principal reductions, another key part of the settlement is that it sets aside $2,000 in payments to individual homeowners who were foreclosed upon and were victims of the mortgage servicers' work.
Gov. Pat Quinn’s office yesterday estimated that the settlement would help 60,000 Illinois homeowners.
The settlement is limited to the five participating mortgage servicers – which make up a combined seven percent of the mortgage market.
Still, the deal is an important moment in the four-year foreclosure crisis because – unlike other federal-state housing programs – it legally compels banks to help struggling homeowners.
“This settlement will have an impact because it is a legal settlement and the banks will have to fully participate,” says Bob Palmer, policy director for Housing Action Illinois.
Like Feltner, Palmer said it was significant that banks now had to adjust the principals of mortgages for homeowners in danger of foreclosure. In previous programs, banks have negotiated over interest rates with homeowners: Negotiating over a mortgage’s principal may better address a home’s declining value.
Where advocates find common ground is in their relief that the deal doesn’t preclude future legal action related to foreclosures. So, for example, Madigan can continue her investigation of Standard & Poor’s credit rating agency and launch investigations against other mortgage servicers.
Madigan said yesterday that “this is not the end of our work to hold banks and other institutions accountable.”