WASHINGTON, D.C.–The $25 billion home mortgage settlement announced this week will be especially important for ethnic families, said Department of Housing and Urban Development (HUD) Secretary Shaun Donovan, in a call-in press briefing Friday.
Acknowledging that the mortgage crisis has affected millions of Americans, “particularly African-American, Latino and other minority families who were targeted for predatory loans and other practices,” Donovan provided more details on the huge settlement between 49 state attorneys general and five of the largest mortgage servicing firms, which signed the deal. Only Oklahoma did not sign on.
Latinos, Blacks Lost Most Wealth
He estimated that Latinos lost “roughly two-thirds of their wealth in just the four years before President Obama set foot in the Oval Office.” African-Americans lost about half their wealth during the same period. He said he did not have the numbers of those eligible categorized by minority groups.
Donovan said the settlement “can’t undo the pain of this crisis simply by writing a check.” He also conceded that even if the settlement fulfills its objectives, will it not alone solve the mortgage crisis’s detrimental impact on the economy.
Rather, Donovan said, he saw the settlement as taking an important step on the “path toward stability for our housing market.” Other steps, he noted, are initiatives such as HUD’s Neighborhood Stabilization program and Project Rebuild, a $15 billion program he said would re-employ approximately 250,000 construction workers—if it need gets congressional approval.
Under the mortgage settlement, those who hold Fannie Mae and Freddie Mac mortgages are not covered. However, borrowers whose mortgages were handled by Ally Financial, Bank of America, Citigroup, JPMorgan Chase and Wells Fargo will have several options to seek reimbursements and the possibility of mortgage restructuring.
Donovan specifically addressed a provision in the settlement that he said has been misunderstood. He explained that about 750,000 borrowers, who were inappropriately charged servicing fees or whose paperwork was misplaced, will be eligible to receive between $1,500 and $2,000 each–without having to sue separaretly for the compensation.
However, contrary to some initial public reaction, he said, these payments, totaling $1.5 billion of the settlement, do not represent the full extent of direct financial compensation to those who lost their homes.
Donovan explained that full compensation will be available through a separate process. Additionally, because mortgage holders are forfeiting no legal rights under the settlement, consumers still have the option of taking their respective lender to court.
Mortgage Holders Can Renegotiate Principal
At the heart of the settlement is not only the money targeted for specific states or pruposes, such as to expand housing counseling services, but the opportunity for homeowners to negotiate with their lenders to reduce the principal amount their mortgage rate is based on.
This will help many whose houses are now “under water,” with mortgages more expensive than the post-recession value of their property, to remain in their homes.
Donovan said there will be incentives for the mortgage lenders built into the process. In addition, he continued, Bank of America, which acquired one of the most egregious predatory lenders, Countrywide, will be taking more extensive actions to redress loan delinquencies.
Military mortgage holders are also being extended options designed to fit their often unique circumstances. For instance, active duty personnel are frequently required to relocate when some are holding mortgages that exceed the value of their homes in a depressed market. Donovan said special benefits will be available to them.
In addition, Donovan said the Homeowner Bill of Rights, recently proposed by President Obama, would also go a long way to provide transparency for those seeking a mortgage.
“No more lost paperwork, no more run-arounds, no more excuses,” Donovan said.
The HUD Secretary said the settlement process will be overseen by an independent monitor with enforcement through the courts. He went on that the full details of the plan have yet to be determined, and he estimated that it will take about a month before eligible mortgage holders will begin to be contacted in an outreach process that will probably take between six and nine months.
In the meantime, Donovan said information on the settlement is available is now at www.mortgagesettlement.com.