By David Dayen, a lapsed blogger, now a freelance writer based in Los Angeles, CA. Follow him on Twitter @ddayen Yesterday, the National Mortgage Settlement monitor,
Joseph Smith,
released his final crediting reports, confirming that all five banks (
Wells Fargo, Bank of America,
Citi, JPMorgan Chase and Ally, now known after bankruptcy as Residential Capital, or
ResCap) have now satisfied the consumer relief portion of the foreclosure fraud settlement. The banks were required to spend $20 billion in “credited” relief (some actions received less than a dollar-for-dollar credit). Smith exults that the gross relief provided totaled over $50 billion, and that “more than 600,000 families received some form of relief.”
What the
mainstream media reports on this don’t tell you is that the $50 billion number is wildly inflated: for example, it includes $12 billion worth of
deficiency waivers in non-recourse states, which the IRS confirmed have no value whatsoever. But I didn’t know just how inflated these numbers were, and how empty the promises, until I went through them all.
HUD Secretary
Shaun Donovan did make a prediction about how many homeowners would get relief under the settlement, so we have a benchmark. He used it over and over in the PR push to get it inked. The number?
1 million.
“We’re very close to a settlement that would both fix the servicing problems, but also help over a million families around the country stay in their homes and get help,” Donovan said at a
U.S. Conference of Mayors meeting in Washington.
Even at the time this seemed ludicrous; a study from the
Brookings Institution showed that only 500,000 would be
eligible for principal reductions, given the constraints of the settlement (no Fannie/Freddie loans, for example). But it played out even worse than these fears.
The total borrowers helped with “some form of relief,” Joseph Smith reported, was 600,000, a little over half of Donovan’s promise. But Donovan specifically said that 1 million would receiveprincipal reductions. The 600,000 includes borrower transitional funds (as in, “you have to leave your home, here’s $1,000″), short sales, deed-in-lieu foreclosures, deficiency waivers, forbearance measures, anti-blight actions, and refinancing). Moreover, it includes second-lien principal reductions, which in a large majority of cases, almost all of them, are worthless and unsalvageable. So you have to separate the wheat from the chaff to figure out just how many homeowners got first-lien principal reductions that helped them “stay in their homes.”
Frustratingly and probably by design, the crediting reports do not break down those numbers; you have to go into the individual court reports for each bank. The numbers are further cut up in fairly odd ways – there are different types of first-lien mortgage modifications listed, including “Principal Forgiveness,” “Forbearance Forgiveness” (well which is it, forbearance or forgiveness?), “Federal Program Forgiveness,” “Conditional Forgiveness” and “180 Days Past Due with Forgiveness.” I’m going to be nice and keep in everything but the “conditional” forgiveness, which is after all conditional, and the 180 DPD, which is forgiveness on a loan that appears unrecoverable. So with that in mind, here are the numbers for first-lien principal forgiveness for each bank (I’ve linked to the court report so you can check this yourself):
Bank of America: 30,609
JPMorgan Chase: 18,114
Citi: 10,296
Wells Fargo: 23,248
Ally/ResCap: This one is harder to figure, because the
court report does not break down the numbers at all. The
summary shows that ResCap devoted about $130 million to principal reduction. Assuming an average $100,000 principal reduction each, which was roughly the standard, you get about 1,300 borrowers.
Total all of those up, and you’re left with a grand total of 83,567 first-lien principal reductions from the settlement. That means that Donovan over-promised by about 90% when he said that 1 million borrowers would get principal reductions.
Just as an example of how the banks gamed this crediting system, we can look at Bank of America’s chart (page 22 of
this report). Of the 317,028 homes given “relief,” nearly half of them, 141,539, were for second-lien modifications, and another 122,384 were for short sales and borrower transition assistance. Less than 10% of the borrowers “helped” were given first-lien principal reductions. In other words, to pay a penalty for misconduct, Bank of America mostly did what it would have normally done anyway in its course of business, facilitating short sales and extinguishing worthless second liens. Only this time, they got credit for those routine activities, to rid themselves of their penalty.
I thought the numbers would be ugly, but not THAT ugly. We already knew that the punishment would not come close to fitting the crime here, with abuse of millions of borrowers forced out of their homes with false documents settled for what amounted to pennies. But the Secretary of Housing and Urban Development sold the settlement on a promise of helping 1 million homeowners, and the final number missed the cut by over 916,000. That’s incredibly sad, and shows the essential dishonesty Donovan displayed in his PR push back in 2012.
Needless to say, we’re used to the Obama Administration falling far short of their goals for homeowner relief, whether because of a lack of interest or a desire to foam the runway for the banks or whatever. Even still, the level of duplicity is breathtaking. Belatedly, the housing groups who initially supported the settlement have come around and acknowledged this; in a statement, Kevin Whelan of the Home Defenders League noted that “too much of the relief came in forms that still left families losing their homes (like short sales) or activities that the banks might have done anyway (like second lien reductions).” But it’s cold comfort for these groups to recognize this sellout after it’s already taken place, instead of when the fight mattered.
Joseph Smith, in his final
statement, has the gall to say that “in many cases, the banks exceeded” their requirements under the settlement. That speaks to how flawed the settlement was in its design more than anything.
The servicing standards, which have gone so well that Attorneys General have threatened to sue the banks for non-compliance, will continue until the end of 2015. But they are largely duplicated by the Consumer Financial Protection Bureau’s servicing rules. So in effect, the book has closed on the National Mortgage Settlement, one of the most shockingly awful examples of government cowardice and corruption in recent American history.
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