While praising the mortgage industry for the promising amount of customer relief delivered so far, Joseph A. Smith Jr., monitor of the national mortgage settlement has three specific concerns in his 2013 agenda.
The February progress report shows that banks have delivered roughly $45 billion in gross relief to more than 550,000 homeowners nationwide at about $82,000 per borrower, Smith said during his remarks at the Women in Housing and Finance Annual Symposium, which is promising. However, “important concerns have been raised about it.”
The No. 1 concern is the banks’ use of short sales as a relief mechanism.
Short sales accounted for a large number of transactions and a significant portion of the gross dollar relief reported by the banks, he said, even though the settlement requires that 60% of the total credited relief come from first- or second-lien principal forgiveness. “Banks simply cannot short sale their way to satisfaction of their obligations under the settlement.”
Another concern is about second-lien modifications. Under the settlement banks could get credit for these modifications, yet such modifications do not relieve the borrower from first-lien burdens, he noted. Second-lien modifications help reduce overall borrower debt. T
Most importantly, although under the settlement the bank gets credit fo rsecond lien modifications, "the borrower is still sent to foreclosure,” making it even more difficult to assess whether a short sale or a modification was the best customer relief strategy for an individual loan.
Finally, he said he shares the concerns expressed by a number of community advocacy and civil rights groups that advocate “further steps should be taken to ensure that at least a fair share of consumer relief go to low- and moderate-income borrowers, particularly those in communities of color.” Given the subprime lending devastation inflicted on these communities and the wealth disparity these issues “deserve a serious response,” he added.
