$335M in principal reduction is a drop in the bucket for the $12 billion promised to Californians
SAN FRANCISCO, Aug. 30, 2012 /PRNewswire-USNewswire/ -- The Office of Mortgage Settlement Oversight, led by Joe Smith, released the first progress report of bank performance on the $25 billion Attorneys General settlement that came after reports of "robosigning" and other improper foreclosure practices by banks. In California, Attorney General Kamala Harris negotiated an $18 billion plan that included $12 billion in principal reduction for Californians, with incentives for much of that relief to reach homeowners in the first year.
However, the progress report reveals that banks have made little progress on providing principal reduction to California homeowners, and instead have prioritized short sales—a tool that represented business as usual for banks before the settlement was ever announced. Specifically, only 2,334 California borrowers have received principal reduction (or "first lien modification forgiveness"). This represents $335 million, or just 2.7% of the $12 billion in principal reduction that Californians were promised in the settlement, and desperately need. Banks are required to get the total $12 billion in principal reduction to Californians by 2015, with much of the relief intended to get out in the first year. If the first three months of progress are any indication of their willingness to reach this goal, underwater California homeowners should be concerned and policymakers should be wary.
On the other hand, banks have been offering short sales for homeowners during the same time period, as 25,844 borrowers have received short sales totaling $3.9 billion of relief. In fact, 85% of the relief distributed in California in the first three months has come in the form of short sales. Short sales might work for some people, but they are not clear victories for a state that is trying to stave off unnecessary foreclosures and displacement. "The California piece of the settlement emphasized principal reduction because that is what is needed to stabilize families and neighborhoods in California, and yet the banks initial performance shows that meeting Californians needs are not their priority," said Kevin Stein of the California Reinvestment Coalition.
Most concerning is the lack of transparency regarding who is getting this relief. The Office of Mortgage Settlement Oversight does not currently collect any demographic information about the borrowers and neighborhoods seeking relief and those getting relief. Data like race, ethnicity, income, gender, and census tract would reveal whether banks are fairly providing relief to communities hardest-hit by the foreclosure crisis, especially communities of color. The discriminatory and unfair practices exhibited by the banks over the years have left Californians no reason to trust that they are getting this relief to all of the people who qualify for assistance and that need it the most. Mr. Smith should immediately require banks to disclose demographic data to the general public in order to ensure fair lending standards are being met.
SOURCE California Reinvestment Coalition