Foreclosure failures

ProPublica has a piece up today that updates its fine reporting on the foreclosure crisis and the federal and state governments’ lagging response.

As the piece points out, we are in the sixth year of the crisis and

the percentage of loans in foreclosure remains a staggering eight times higher than it was in 2005. About 5.3 million homeowners — about 11 percent of all borrowers — are behind on their payments.

The government’s response so far has been lacking.

The largest program is a review overseen by federal regulators covering more than 4 million loans. It launched back in 2011, but as of mid-December, no homeowner had received any compensation. Office of the Comptroller of the Currency spokesman Bryan Hubbard said regulators had been “working toward beginning compensation for a limited number of people [this month] with reviews and remediation continuing through 2013.”

The program — called the Independent Foreclosure Review — has been beset with questions about its fairness, transparency and integrity since it launched. At least partly due to those problems, many borrowers aren’t even bothering to apply for compensation. As of November, only 315,000 borrowers have sent in forms requesting to be reviewed, according to the OCC’s Hubbard, about seven percent of people eligible to apply. The final deadline to apply is at the end of this month.

Federal regulators designed the program to work like this: Each of the banks would hire an “independent consultant” (approved by the regulator) to conduct reviews of the bank’s foreclosure cases. The bank was supposed to foot the bill, but the consultant, not the bank, was supposed to decide which of the bank’s customers deserved compensation and how much.

The money, however, is not going to homeowners. Rather, it has been going to banking consultants — when it has been distributed at all.

The government’s other big reaction to the foreclosure crisis, the National Mortgage Settlement, has also had its disappointments. The deal involved 49 states, the federal government, and the five largest mortgage servicers. The headline number was $25 billion, but only $5 billion of that is actually cash that the big banks would pay out. The other $20 billion is composed of “credits,” awarded when the banks take steps to avoid foreclosures, for instance by offering loan modifications that cut the amount homeowners owe.

Of the cash, half — $2.5 billion — was to go to states to address the foreclosure crisis. But as we’ve reported, almost $1 billion of that is actually being used to patch state’s ailing budgets.

That is the case here in New Jersey, which has a mortgage delinquency rate of 9.87 percent — almost two percentage points above the national average of 8.06 percent. The state received $72.1 million in settlement money, none of which is going to programs for homeowners. Instead, it is being used to balance the state budget — which benefits the politicians, but does nothing for troubled homeowners.


The middle class always pays

The fix is in — and the middle class pays. That is the point of this column by Richard Parker, from the McClatchy-Tribune news service. The banks and the government — with collusion from both political parties — have created a system in which financial institutions can do what they want without consequences. When the banks and investment firms make bad decisions — which is often — they get bailed out by the government, which means we clean up their mess.

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