Banks agree to two settlements on mortgage lending
Major banks have once again agreed to a settlement, this time worth $8.5 billion, to compensate homeowners whose homes were fraudulently foreclosed upon in 2009 and 2010 through practices such as “robo-signing.” JP Morgan Chase, Bank of America, and and Wells Fargo will pay $3.3 billion to homeowners, and the remaining $5.3 billion will reduce mortgage bills and forgive principals on homes that were sold for less than what the owners owed on their mortgages. 3.8 million homeowners will be eligible to receive compensation ranging from a few hundred dollars to a maximum of $125,000.
In another settlement, Bank of America has agreed to pay the federal housing finance agency, Fannie Mae, $11 billion for selling the agency bad mortgages that defaulted, causing Fannie Mae to assume all the losses. $3.6 billion will be used to compensate for the bad mortgages, and $6.75 billion will be used to buy back mortgages.
Both of these agreements are part of a process to mitigate the impacts of the housing crisis and to hold the banks accountable for their role in both creating the housing bubble and in using questionable, if not fraudulent, methods in servicing their loans and processing foreclosures. Having faced significant losses, Bank of America continues to move out of the mortgage market, and in the deal with Fannie Mae, it agreed to sell the servicing and collection rights for 2 million loans, totaling $306 billion. Some economists and analysts are concerned that as the major banks shift away from mortgage lending, the industry is being consolidated into the hands of a few banks. However, though the housing market is recovering slowly, banks, such as Bank of America, might not be in a position to compete, given the losses they’ve already incurred and the problems they’ve had in servicing loans.
More importantly, for people who lost their homes, the question is whether the $8.5 billion deal will provide much in terms of compensation. The loss of a home can hardly be compensated for with a few hundred or even a few thousand dollars. Those who receive the higher end of compensation may be able to find a home, but that depends on a range of factors, including home prices where they live and their personal financial situations now. The foreclosure crisis left many individuals,families, and neighborhoods in severe financial distress.
These one-time settlements and small amounts of compensation will not address the systemic challenges that people and communities continue to struggle with. As we previously blogged about, foreclosures have impacted communities on multiple levels, from increased crime, reduced revenue, neighborhood blight, and displacement of families. As NeighborWorks stated in a report on foreclosures and communities, “Not only are people losing homes, but also communities are suffering economically, physically, and socially.” What is needed are more broad-based recovery policies to help communities recover and become more resilient in the long-run. Homes are the building blocks of communities, and communities are the building blocks of our economy. Helping individuals with monetary compensation may be a part of an overall strategy to mitigate the impacts of the mortgage crisis, but it cannot be the only strategy.