The megabanks have now completed their obligations under the 2012 National Mortgage Settlement (NMS), according to a report from the official monitor.
The banks helped more than 600,000 separate homeowners — less than two-thirds of the original low-end estimate of how many people would keep their homes, but still a significant raw total. But that official figure falls apart under scrutiny, and in fact fewer than 85,000 homeowners got the kind of mortgage modifications that actually help keep people in their homes.
“These reports confirm that the banks have satisfied their consumer relief and refinancing obligations under the Settlement,” the NMS monitor’s office wrote in a press release Tuesday. NMS monitor Joseph Smith said in the release that his team’s work “should justify public confidence that the banks have fulfilled their relief commitments.” But Smith’s figures look paltry next to the original projections of what the NMS would accomplish.
When the deal was struck, its supporters argued it would “help over a million families around the country stay in their homes,” in the words of Department of Housing and Urban Development (HUD) Secretary Shaun Donovan. Some initial reports even projected the number of beneficiaries could get as high as 2 million.
The settlement derived from the “robosigning” scandal, where the country’s largest financial companies were systematically falsifying legal documents when they couldn’t prove they owned the right to foreclose on a given home. Under the deal, the country’s five largest mortgage servicers were supposed to give $5 billion in direct payments to states and homeowners and take $20 billion worth of “homeowner relief” actions such as reduced mortgage principal amounts and refinanced mortgage rates. The five banks took $50 billion worth of action toward homeowner relief, of which the NMS monitor says $20 billion actually qualified for the purposes of the settlement.
According to Smith’s figures, there were 631,556 total mortgages that benefited from the banks’ relief actions. Bank of America took by far the most relief actions of any of the five banks, aiding 317,028 separate loans through $27.3 billion worth of homeowner relief actions. (Barely a third of that dollar total qualified as homeowner relief under the terms of the settlement.)
But the settlement defined homeowner relief so broadly that Smith’s numbers overstate the amount of help people got to stay in their homes. Journalist David Dayen found the actual number of people the NMS kept in their home through “first lien mortgage modification,” or a reduction in the principal or interest rate on a person’s first mortgage on a house, was under 84,000. That massive list of over 317,000 loans given “relief” by Bank of America turns out to be mostly “other credits” and second-lien mortgage modifications. Smith’s topline number includes over 219,000 homeowners who got “other credits” rather than mortgage modifications, including about 40,000 homeowners who got “transitional funds” checks to help them search for a new place to sleep. The direct payments to homeowners turned out to involve so little money that many didn’t even bother cashing the checks.
The settlement’s broader goal was to stop banks from abusing homeowners going forward. As Smith’s previous reports show, it failed to deliver that kind of change. These same companies continue to violate the settlement. Chronic violations of the deal forced the settlement’s oversight board to rewrite some of the terms of the deal because banks weren’t living up to the terms.
All of this fits the Obama administration’s ugly pattern of exaggerating its Wall Street accountability accomplishments. Other mortgage relief programs have failed to reach their goals. Attorney General Eric Holder repeatedly overstated his mortgage fraud task force’s achievements by a factor of five, and promised dramatic enforcement actions in the fall but delivered a settlement with JP Morgan that will not cost the bank even half of what the government says it will. A damning new Inspector General’s report found that Holder’s team “did not uniformly ensure that mortgage fraud was prioritized at a level commensurate with its public statements.”