Wednesday, May 23, 2018
Editorials

On balance, a good plan on mortgage fraud

A $25 billion financial settlement lets five of the country's biggest banks buy their way out of a massive investigation into fraudulent and abusive mortgage servicing practices, including the use of robo-signers. Whether the deal is sound will depend upon enforcement. If the money is used as intended and banks are forced to offer principal reductions and refinancing for up to 1 million homeowners, about a third of those in Florida, it will do some good. Otherwise it will be an empty promise to struggling homeowners and another opportunity for banks to escape responsibility.

The banks got into this fix by engaging in highly dishonest practices in their servicing of mortgages. Low-level workers or "robo-signers" were used to create thousands of fraudulent legal documents to be used in foreclosures. Banks also routinely piled unjustified fees and charges on delinquent homeowners, making loan repayment increasingly out of reach. Under the settlement, worked out between the federal government, 49 state attorneys general, and Bank of America, Wells Fargo, JP Morgan Chase, Citigroup and Ally, the banks are released from civil liability. Criminal charges could still be brought in the future, and homeowners could sue in civil court.

In exchange, the settlement is designed to help about 10 percent of the 10.7 million homeowners across the country who owe more than their house is worth. Florida would receive $8.4 billion, about a third of the settlement, with about $7.6 billion to assist the state's delinquent borrowers through loan modifications. Hundreds of millions also would help underwater borrowers refinance, provide cash payments of $1,500 to $2,000 for homeowners who have been foreclosed upon and underwrite a state program of foreclosure protection.

Among the settlement's deficiencies is that eligibility is limited so there won't be universal relief. For example, principal reductions will be available primarily for borrowers whose loans are owned by the banks, not those owned by Fannie Mae or Freddie Mac, which hold the bulk of mortgages. Still, the settlement does have a broad beneficial reach when it comes to establishing new loan servicing standards. These address a range of frustrations borrowers face when dealing with lenders.

Now lenders will have to offer a single point of contact for borrowers so they don't get sent all over the bank's many departments only to repeat their case over and over. No longer could a borrower waiting on a loan modification decision suddenly be slapped with a foreclosure action, and a determination on a loan modification would have to be made within 30 days. The new rules also end excessive late fees and other unjustified costs that lenders heap on delinquent borrowers.

Since lenders have gotten proficient at ignoring consumer protections knowing there is no one holding them accountable, that has to change for this settlement to be meaningful. Florida Attorney General Pam Bondi must put a system in place that adroitly responds to banks ignoring the new rules, and the agreement provides money for that purpose.

To be sure, the settlement is a mixed bag. It absolves banks of fraud and allows them to avoid public exposure of their misdeeds. But it will rein in abusive bank practices and help a significant number of struggling homeowners remain in their homes, stabilizing families, neighborhoods and communities. All told, it is an acceptable deal.

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