Historic Foreclosure Settlement Beneficial To Borrowers?

The 49 state foreclosure settlement has promised to compensate borrowers who were harmed by illegal foreclosures while failing to criminally prosecute the banks involved.  To many victims of the illegal foreclosures, it’s a deal that offers too little, too late. And to some consumer advocates, fines levied on banks are simply a slap on the wrist which is unlikely to prevent future violations of the law.  Let’s take a look at the basics of the foreclosure settlement and how they impact borrowers, see it here.

Banking Oversight

State Attorney Generals will for the first time ever have the right to oversee the activities of national banks. While this may provide little consolation to homeowners who lost time, money and property to illegal foreclosures, it does allow the state more leverage in preventing (or at least identifying) future violations.

The new rules, which are part of this settlement, also put into place a set of standards that all banks must meet. These standards include a requirement that servicers maintain adequate contact with borrowers, provide proper training to staff and refrain from foreclosing on a property while the owner is still trying to modify their mortgage.

But some analysts view the new rules as ineffective because banks won’t face imprisonment if they fail to meet the standards.  Some opponents of the settlement also contend that fines may be viewed as just the cost of doing business. And as long as the banks view illegal and unethical behavior as profitable, fines alone won’t stop them. They also point out that during the 80’s and 90’s many bank executives went to prison because of the savings and loan scandal.  A solution some housing advocates say is appropriate for today’s crisis.

Compensation To Wronged Borrowers

Borrowers damaged by illegal foreclosures will receive a small stipend of ($2,000) for their troubles. Most won’t argue that $2,000 isn’t nearly enough to compensate someone who has suffered an illegal foreclosure.  And to make matters worse, many borrowers may have trouble proving that they are in fact eligible for compensation.  This is especially problematic for foreclosure victims who lost their homes because they were “dual tracked” which means they were foreclosed on while attempting to solve their financial issues with the bank, usually through a mortgage modification.

Criminal Charges Not Likely

When 49 state Attorney Generals banded together to punish mortgage servicers for causing the housing crisis and exasperating the pain of struggling borrowers, many hoped to see some people taken away in handcuffs. But that’s not likely to happen.  The foreclosure settlement does not include in criminal prosecution clause and at least one criminal case (in Arizona) against mortgage servicers has been included in the settlement.  To add salt to the wound, the $50 million Arizona received from the foreclosure settlement is reportedly being used to settle the state’s budget deficit instead of supporting troubled borrowers.

It’s worrisome to think that the foreclosure crisis and this settlement could conspire to make borrowers leery about mortgages.  Watching borrowers, some of whom didn’t have mortgages, lose their homes to fraudulent foreclosures is unnerving. And it’s the kind of legacy that could make future buyers cynical of the mortgage industry. But cynicism does not bode well for any players in the mortgage industry.

(source: http://www.huffingtonpost.com/eric-zuesse/obama-foreclosure-settlement_b_2170927.html and http://www.businessweek.com/ap/2012-11-26/ariz-dot-court-weighs-challenge-to-use-of-settlement and http://www.businessweek.com/news/2012-11-19/u-dot-s-dot-banks-have-provided-26-dot-1-billion-under-foreclosure-accord )