College grads should be getting ready to live the American Dream and buy a house of their own. But they’re being held back by their crushing debt loads, meaning that fewer single family homes are being built. Students got caught in a housing market spiral: many parents who had once used home equity to help finance college costs had to pull back when the market tanked, leaving students to take on more debt, which is now getting in their way of owning their own homes. According to Bloomberg News, at the height of the housing boom, about $7 billion of equity was cashed out to pay for education.

Bloomberg News also reports that young people hold the majority of student loan debt, but their rates of homeownership have cratered:

Two- thirds of student loans are held by people under the age of 40, according to the Federal Reserve Bank of New York, blocking millions of them from taking advantage of the most affordable housing market on record. The number of people in that age group who own homes fell by 4.6 percent in the fourth quarter from the third, the biggest drop in records dating to 1982. […]

The issue is being exacerbated by an explosion in the $150 billion private market for student debt with interest rates for some existing loans surpassing 12 percent. Unlike mortgage holders, borrowers have little hope of refinancing at lower rates.

While a survey found that nine out of ten people want to own their own home, rental demand is at a ten-year high. So while housing construction is starting to rebound, the type that these young people would be building, single family homes, fell 4.8 percent in March. Rather than buying, many are renting – or crashing on their parents’ couch. That’s bad news for the housing market and the economic recovery.

This is all happening at a time when total student debt has inched past $1 trillion. The problem isn’t just that recent grads may be wary of taking on mortgage debt when they already carry such huge burdens. The debt itself likely hampers their ability to get a mortgage in the first place, since due to a high debt-to-income ratio.

Congress could do something small to ease this situation: keep interest rates on federal loans from doubling, as it did last year. But even that won’t be enough to deal with such high amounts of debt that are taking a big toll on the economic recovery.

Sen. Barbara Boxer (D-CA)

A report issued early in April found that the five banks subject to the settlement — JP Morgan Chase, Ally Financial, Bank of America, Citigroup, and Wells Fargo — have violated it in various ways, including by continuing to foreclose on homeowners even as they seek loan modifications. That process, known as dual tracking, was banned by California law in 2012 and prohibited by the settlement. In a letter to federal regulators last week, Boxer called for an investigation into the practices, The Hill reports:

“It is essential that you take swift action to ensure that the banks are meeting their obligations under the terms of the settlement and that struggling homeowners receive the assistance they need,” Boxer said in a letter to Attorney General Eric Holder, Secretary of Housing and Urban Development Shaun Donovan and National Mortgage Settlement Monitor Joseph Smith on Friday.

“Too many Californians already have lost their homes unnecessarily during the foreclosure crisis due to bank malfeasance or error,” she wrote.

Reports have also found that banks are still discriminating against minority homeowners, as they did in astounding numbers before the housing crisis, and are failing to sufficiently provide relief required by the settlement.

The reports are yet another indication that the mortgage settlement is coming up short of its goals, as banks have found various ways to get around the requirements that were meant to make them pay for the fraud, abuse, and discrimination they perpetuated before the housing bust and during the foreclosure crisis. Dual tracking and other practices were responsible for an untold number of improper and potentially illegal foreclosures, but after months of banks lagging on their obligations, it now seems the settlement hasn’t yet put an end to the practices.

A duo of Democratic lawmakers is pressing federal regulators to release documents related to the Independent Foreclosure Reviews of loans issued by the largest banks so that the government can conduct proper oversight of the process. Massachusetts Sen. Elizabeth Warren (D) and Maryland Rep. Elijah Cummings (D) sent a letter to the Federal Reserve and the Office of the Comptroller of the Currency this week asking for documents related to foreclosure abuses carried out by big banks and mortgage lenders.

Regulators halted the independent review process earlier this year when they reached a $10 billion settlement with the banks, a decision that largely let banks off the hook for problems with their foreclosures. In the letter, which was obtained by The Hill, Warren and Cummings said they were told by regulators that documents related to the process are “trade secrets” that can’t be released without violating confidentiality agreements. Warren and Cummings took issue with that argument, The Hill reports:

“We strongly believe that documents should not be withheld from any Member of Congress based on the flawed argument that illegal activity by banks is somehow their proprietary business information,” they wrote.

“Breaking the law is not a corporate trade secret. As regulators, you identified systemic and widespread abuses two years ago, and concealing important information about these violations limits our ability to fulfill our responsibility to conduct oversight over the actions of mortgage servicing companies and to develop legislation to protect our constituents from further abuse.”

A watchdog report from the Government Accountability Office (GAO) last week found that regulators at the Fed and OCC gave banks “too much leeway” in how the reviews were conducted, implying that the shoddy review process led to a hastened settlement instead of a complete review process. Warren and Cummings also assert that the review process failed to detail how many homeowners were subject to wrongful foreclosure practices.

The $10 billion settlement was the second major deal reached between the federal government and banks over foreclosure abuses, after federal regulators and state attorneys general reached a $25 billion settlement with the five largest banks related to mortgage fraud and abuse. That settlement too has had its problems, as banks have been able to game its requirements to keep from providing the required assistance to homeowners they wronged with widespread fraud and abuse before, throughout, and after the housing crisis.

When federal regulators reached their second foreclosure fraud settlement with the nation’s largest lenders in January, lawmakers and housing advocates panned it for letting banks “sweep past abuses under the rug.” Regulators ended the foreclosure review process banks to which banks had been subject to reach the $8.5 billion settlement, allowing them to pay far fewer costs than fair lending advocates say they would have had the reviews continued.

Now, government watchdogs are also criticizing the review process and federal regulators. In a report issued this week, the Government Accountability Office said the Federal Reserve and the Office of the Comptroller of the Currency, the two regulatory agencies that oversaw the review process, gave lenders “too much leeway” in the reviews, The Hill reports:

The Office of the Comptroller of the Currency (OCC) and the Federal Reserve gave mortgage servicers and their consultants too much leeway in reviewing their mortgage loans, resulting in a complex and widely varied process that made it difficult to oversee as a whole, according to a draft GAO report obtained by The Hill. [...]

While the report explicitly does not weigh that specific decision, the GAO did find that the review process was complex and bogged down by a host of factors. Millions of mortgages were up for review, and the process ended up involving dozens of institutions, including 14 servicers, 14 third-party consultants from 7 different firms (some with subcontractors), and more than 10 law firms.

The GAO report does not criticize the settlement itself, but the implication is that the complicated review process led to a hastened settlement instead of comprehensive reviews to find out how many homeowners were wronged by foreclosure abuses. Rep. Maxine Waters (D-CA), who opposed the decision to halt reviews, said the report “confirms what I had long suspected – that the OCC’s oversight of the supposedly-independent consultants hired by the servicers was severely deficient,” and added that the process was “deeply flawed.”

This isn’t the first foreclosure settlement to be widely criticized by housing advocates. A little more than a year ago, the federal government and state attorneys general reached a settlement with big banks over foreclosure abuses that included robosigning and other fraudulent practices, but that settlement has also come up short in helping affected homeowners. Instead, big banks have gamed many of the settlement’s requirements, while there is little accounting for whether they are spending money to help homeowners in ways they were supposed to.

The automatic budget cuts caused by sequestration that began taking effect on March 1 could ultimately lead to the denial of rental assistance housing vouchers to as many as 140,000 low-income families, according to a study from the Center on Budget and Policy Priorities. Worse, the cuts come at a time when low-income housing programs are already struggling because of previous budget cuts.

Sequestration would cut $938 million from the Housing Choice Voucher program this year, leaving the program six percent short of the funds it needs to extend housing vouchers to the same number of families it served in 2012. Agencies are already “shelving” vouchers, according to CBPP, meaning they aren’t issuing new vouchers to families who are waiting. And they will continue to do so both because of cuts and over concerns about whether they will receive increased funding in the future, leading to a precipitous drop in the number of families served:

Most agencies will likely continue to shelve vouchers so long as their monthly housing assistance costs exceed their monthly renewal funding allocations from HUD, in light of the risk that the funding cuts could extend into 2014. As a result, we estimate that by early next year, agencies’ voucher programs are likely to shrink by approximately 140,000 households — primarily seniors, people with disabilities, and families with children.

Housing vouchers typically serve low-income families and senior citizens, and the cuts could also mean that agencies choose to raise rent prices in an effort to reduce costs. Reducing the payment standard, which defines the maximum amount covered by a voucher, by 10 percent would raise rent by $100 per month for the typical family, according to CBPP. The cuts will also hit homeless assistance programs and funds that help build low-income housing for seniors.

Sequestration’s impact is already being felt by low- and middle-income families, as children being kicked out of Head Start programs, government workers are facing furloughs, and many jobs in education and other fields aren’t being replaced. Rental and housing assistance is just the latest area where people will feel the impact of budget cuts the economy doesn’t need.

Photo by flickr user gilsonrome

However, as the New York Times noted, that $9.3 billion headline number is much higher than the amount homeowners will actually receive:

Under the settlement, banks receive credit for the size of the outstanding loan balance, rather than the amount of actual assistance provided. For example, if a bank cut a borrower’s $100,000 mortgage debt by $10,000, the lender could then reduce its commitment under the settlement by $100,000. In a previous foreclosure settlement, the banks received credit only for the $10,000.

This obviously incentivizes banks to give small amounts of aid to homeowners with large mortgages, tallying the larger amount under the settlement while not providing much in the way of help. As Karen Weise detailed at Businessweek, the settlement also gives banks a helping hand in a variety of other ways.

“All in all, the settlement moves further away from compensating borrowers and actually identifying mistakes banks may have made,” she wrote. The Times notes that regulators initially “declined to attach any conditions to the assistance,” and were then steamrolled by the banks when they sought to add conditions later.

Rep. Maxine Waters (D-CA), ranking member of the House Financial Services Committee, has called for an investigation into why regulators decided to stop the prior settlement’s foreclosure reviews and instead opt for a new settlement. And this is certainly not the first time that banks have been able to get away with stiffing homeowners under the guise of a settlement. Last year’s $25 billion foreclosure fraud settlement has also been gamed by banks, while state legislators have siphoned off some of its funding for purposes other than helping homeowners.

The banks involved in last year’s foreclosure abuse settlement are spending more money to get bad loans off of their books than they are on directly reducing the amount homeowners owe on their mortgages, according to a new report from the settlement’s overseer released Thursday.

Five large banks reached a $25 billion settlement with the federal government and state attorneys general in 2012, and though their efforts to help homeowners improved at the end of 2012, much of the money they have spent has been aimed at short sales that help homeowners get away from underwater mortgages but also help the banks get bad loans off their books, Bloomberg reports:

Bank of America Corp., JPMorgan Chase & Co. (JPM), and three other banks in last year’s $25 billion foreclosure-abuse settlement spent $19.5 billion through the end of 2012 approving so-called short sales that let homeowners sell for less than they owe on their mortgages, Joseph Smith, the settlement’s monitor, said today. By comparison, the banks spent $6 billion reducing borrowers’ principal to help them stay in their homes, an increase from $2.6 billion at the end of the third quarter.

While the banks are stepping up efforts to help borrowers stay in their homes, they are still spending most of the settlement on short sales and forgiveness of home-equity loans that allow them to take bad loans off their books. Profits from new lending are increasing even as regulators enforce penalties for modification missteps and foreclosures pursued with fraudulent or missing documents. Last year, mortgage revenue at the four largest lenders — Bank of America, JPMorgan, Wells Fargo & Co. (WFC), and U.S. Bancorp –surpassed the amount they spent on consumer settlements and investor demands they buy back faulty loans.

The five banks have spent a total of $45.8 billion as part of the settlement, according to the report from Joseph Smith, the settlement’s monitor. Because they do not receive dollar-for-dollar credit for money spent, they have not yet fulfilled terms of the settlement, which required them to provide $20 billion in mortgage relief. Only Ally Financial has completed its obligation.

Focusing on short sales isn’t a recent development under terms of the mortgage settlement, which has been riddled with problems over the last year. States diverted much of the money they received under the settlement to closing budget gaps, and many homeowners — particularly those hardest hit by the housing crisis — have yet to see relief. Because of the reliance on short sales, banks are “spending more to move people out of their homes than to keep people in them,” the Campaign for a Fair Settlement said in a statement earlier this month.

There were fewer foreclosure filings in January than there have been in any month since April 2007, as foreclosures dropped 28 percent from the same month a year ago, according to data from RealtyTrac. And while the drop was significant across the country, no state contributed more to the decline than California, where legislators last year passed a law that grants homeowners new rights in the foreclosure process.

The “Homeowners’ Bill of Rights,” signed by Gov. Jerry Brown (D) in July, took effect at the turn of the year. California has led the nation in foreclosures every month since 2007, but foreclosure filings dropped 62 percent in January, moving three states ahead of the Golden State. The decline is at least partially attributable to the homeowner protections contained in the new law, CNNMoney reports:

Regulations that took effect in California contributed to the dramatic decline. The state had long been recording the highest number of foreclosure filings of any state. But on January 1, a Homeowner Bill of Rights became law, offering more protections for California borrowers in default. As a result, new foreclosure filings in California fell 62% in January.

Under the new rules, mortgage servicers must halt all foreclosure proceedings once a borrower applies for a mortgage modification. Servicers will also face fines of up to $7,500 per loan if they record and file multiple unverified documents in foreclosure proceedings.

The Homeowner Bill of Rights makes foreclosure harder for banks by banning practices like dual-tracking, in which banks foreclose on homeowners even as they are seeking a loan modification, and robo-signing, the fraudulent approval of foreclosure documents widely utilized by banks immediately after the housing crash. The law also makes it easier for homeowners to deal with their banks and gives them legal recourse against lenders.

The new regulations, and fears that it would make foreclosing harder and more stringent for banks, led to a “bum rush” of foreclosures before the deadline, CNNMoney reported. But after it went went into affect, foreclosures dropped precipitously.

Other states, however, are trying to take the opposite approach, speeding up the foreclosure process instead of slowing it down and protecting homeowners. Lawmakers in Florida, which now leads the nation in foreclosures, introduced a bill to reduce the amount of time banks had to process foreclosure documents, a plan consumer advocates fear will make it more likely that banks will resort to the shoddy and sometimes fraudulent practices California banned.