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For Immediate Release
August 29, 2012
CLEVELAND, OH – The 49 state attorney general settlement with the nation’s five largest mortgage lenders is supposed to provide billions of dollars in relief to homeowners. It’s a result of widespread robo-signing scandal and other mortgage servicing abuses uncovered during the foreclosure crisis.
Today we received the first report on how the banks are fulfilling their obligations under the settlement. (Link) It leaves ESOP housing advocates outraged and wondering if the settlement is really being used to give relief to homeowners or to the banks who caused this mess in the first place.
A first look at consumer relief shows many more short sales being completed than loan modifications. Of the $10.561 billion of total consumer relief, $8.669 billion was done in short sales. That means the banks would rather sell a home for a loss and kick the homeowner out of the house than offer the borrower the same money to reduce the mortgage balance and keep the family in their home.
“This is insane. I don’t know what’s more perverse,” said Mark Seifert, ESOP Executive Director. “This settlement was supposed to punish these guys. Instead they’re using it to punish homeowners and clean up their own balance sheets.”
“It’s awful,” says Paul Bellamy, Director of Research and Development at ESOP. “How is a family losing their home “consumer relief”? Bellamy says that in some instances a short sale will serve a homeowner’s best interests. “But this report tells us that the banks are using short-sales 6 times for every single reduction in an underwater mortgage balance. Reducing the mortgage balance allows the family to stay in the home, continue making mortgage payments and starting to rebuild equity.” Bellamy suspects this heavy reliance on short sales will improve the banks’ balance sheets, “but it is simply awful for hard hit communities.”
“In many cases short sales will go to an investor,” said Seifert. “We know, at least in our communities, when an investor takes over a property it generally does not lead to a good result for the neighborhood. This wholesale dumping will lead to another wholesale disaster of real estate speculation for our communities.”