When the U.S. Justice Department first began crowing about the $17 billion settlement deal it wrangled from Bank of America over mortgage abuses, there was immediately a question of how much real homeowners could be expected to benefit.
The answer? It’s not clear. We know a portion of those funds are to be paid directly in cash to the federal government. Some will go to state governments. And approximately $7 billion is supposed to be offered as aid to distressed homeowners in the form of loan modifications, short sales, etc. But what does that mean in actuality? Our Miami foreclosure defense lawyers believe probably not much.
The Huffington Post recently published an article on this very subject. Quoting a housing counselor in Fort Myers, principle reductions are rare, and many housing experts aren’t clear on where the money is directed.
It’s a good point, particularly considering these settlements are supposed to provide relief to homeowners – the ones who have been hit the hardest. While it’s true rising home prices have restored a fair amount of value to the market, there were still roughly 9 million distressed homeowners in the second quarter of this year. For these property owners, principle reduction would mean homeowners could once again invest in a home, as opposed to being forced to abandon it. It would also mean homeowners would have increased capital to spread to other areas of the economy – not to mention that it would be a huge mental relief.
The deal with Bank of America stipulates that at least $2 billion has to go to principle reductions. The problem is that the Federal Housing Finance Agency has refused to allow principle write-downs on loans overseen by Fannie Mae and Freddie Mac. Unfortunately, these are the two entities that hold the largest amount of outstanding mortgage debt. This is why, in the past, Bank of America granted huge write-offs to a relatively small portion of homeowners with large loans, as opposed to granting smaller principle reductions to a wider swath of homeowners with smaller loans.
The reasoning, say FHFA directors, is that loan principle reductions would encourage other borrowers to default intentionally, so that they too might take advantage of a reduction. The former acting director called the reductions a “moral hazard,” and he and others leading the agency have stuck to it, despite ample evidence produced from independent study indicating that writing off this debt would actually save taxpayers money because fewer people would default.
The Obama Administration and housing activists have scolded the agency. However, the agency is independent, and can’t be forced to take action. When a former Democratic congressman took over the agency earlier this year, many expected the course to change. However, it didn’t. While the new director, Mel Watt, did make some efforts to aid low-income borrowers, he hasn’t budged on the issue of allowing principle write-downs.
What that means is no matter how much money is pledged as a part of these settlements, more than half of homeowners who really need the help won’t be allowed to accept it.
If you’re battling foreclosure in Miami or the surrounding areas contact Jacobs Legal for a confidential appointment to discuss your rights. Call (305) 358-7991. Also, don’t miss Miami Foreclosure Attorney Bruce Jacobs on 880AM/the Biz, every Wednesday from 5 p.m. to 6 p.m. on “Debt Warriors with Bruce Jacobs,” discussing foreclosure topics that matter to YOU.
Why Underwater Homeowners Won’t Be Saved By Bank Of America’s $17 Billion Deal, Aug. 22, 2014, By Ben Hallman, Huffington Post
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Florida Foreclosure Abuse Victims to Receive $18M From Ocwen, July 24, 2014, Miami Florida Defense Lawyer Blog