Civil rights groups and housing counselors sharply criticized the top five mortgage servicers Wednesday and vowed to force their executives to publicly disclose which consumers are benefitting from the $25 billion national mortgage settlement.
At a forum in Washington, housing counselors called the settlement "disastrous," and grilled its monitor, Joseph A. Smith, on why the banks are not disclosing data on race, ethnicity and geography that would show whether black and Hispanic communities hit hardest by the foreclosures crisis are getting the bulk of consumer relief.
"We should go to the banks and ask them to come clean. Let's push Jamie Dimon," the chief executive of JPMorgan Chase, said Mark Seifert, executive director of Empowering and Strengthening Ohio's People, a Cleveland housing group. "If the banks are aboveboard, they should be proud of what they're doing. The mere fact that they're being secretive about this is proof positive that they are lying to us."
Civil rights groups want the disclosure of data so they can see how banks are allocating the relief required by the national mortgage settlement signed in March 2012.
They say the banks are not abiding by the spirit of the settlement, which was supposed to help borrowers stay in their homes, and instead have given the bulk of relief through short sales and forgiveness of second liens, not principal reductions.
The notion that "a short sale is actually homeowner relief is outrageous," Seifert said.
Though Smith reiterated that banks get more credit for principal reductions and loan modifications, he admitted that the settlement " does not require allocation of benefits in any particular way."
"There is a fair amount of discretion that the servicers have," he said. "I can't promise you massive improvements quickly. The settlement itself is not big enough to solve all the problems. It's not designed to be the only principal reduction program."
The top five mortgage servicers — Bank of America (BAC), Citigroup (NYSE:C), JPMorgan Chase (JPM), Wells Fargo (WFC) and Ally Financial — signed the settlement with 49 state attorneys general and federal regulators to address servicing abuses that led to the robo-signing of foreclosure documents. They have already provided $5 billion in cash to state and federal regulators and must give another $20 billion in direct consumer relief and follow 304 servicing standards and reforms.
After meeting with Smith, housing counselors held a panel discussion where they lambasted a progress report Smith released last week. The report showed banks had allocated $46 billion in relief to 550,000 homeowners but short sales represented 46% of all consumer relief and second-lien writeoffs made up 27%. (Banks only receive partial credit for short sales and forgiving second liens, which explains the discrepancy between the size of the settlement and the $46 billion allocated.)
By contrast, the five mortgage servicers have so far cut principal on first-lien mortgages for 71,000 borrowers, or 13% of those that have received aid.
The banks, though, say the numbers are misleading. Though short sales make up an outsized portion of relief offered so far, the settlement caps the amount of credit banks can receive for short sales, says Tom Goyda, a spokesman for Wells Fargo. As a result, he anticipates that the majority of the San Francisco bank's commitment will come from refinances and modification programs.
Banks also point out that they have reduced second liens for 170,000 homeowners, or 31% of the total. At Bank of America, extinguishing second liens for eligible borrowers has, on average, lowered their debt by $70,000. More important, eliminating the lien removes any current or future claim the bank may have had to the property and to collect against the unpaid balance, said spokesman Dan Frahm.
"Releasing the lien places the borrower in a more reasonable position to make their first mortgage payment, or may put them in an immediate equity position or provide the benefits of accelerated restoration of their credit," he said. He added that borrowers who have received principal reductions to date have seen their loans reduced by an average of $160,000.
Still, short sales to date have made up 67% of the relief offered by JPMorgan Chase, 44% by Bank of America and 43% by Wells Fargo.
Seifert argued that short sales provide little benefit to borrowers. "When you do a short sale, the people buying these houses in our cities, after the banks destroyed our neighborhood, are investors," he said at the meeting in Washington sponsored by the National Council of La Raza, the large Hispanic advocacy group.
One housing counselor told Smith that mortgage servicers are asking homeowners who agreed to do a short sale to sign a separate contract that says they will have to pay the deficiency — the difference between their original mortgage and the short sale price of the home. Others counselors suggested that because servicers get credited based on the amount of principal forgiven, there is a preference to modify high-priced homes that are deeply underwater and not homes in lower-income communities.
"The credit that is being given for short sales and reducing seconds [liens] doesn't make any sense because there is no value for the homeowner," said Drew Astolfi , the state director of Faith Action for Community Equity, a Hawaii grassroots group. "I don't think that was the spirit of the settlement and I don't know how they're going to clean that up."