The Nation’s Biggest Banks Ink a Settlement on Foreclosure Abuses

TOM HUDSON, NIGHTLY BUSINESS REPORT ANCHOR: We’re coming at you
from the world money show in Orlando, Florida. Two major breakthroughs —
one in U.S. housing, the other on European debt. Susie in Europe, finance
ministers are reviewing the deal Greece reached to dramatically cut its
debt. Here in the U.S., the nation’s five biggest banks have a new $25
billion deal over foreclosure abuses.

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Lots to report on tonight Tom, but we’re going to begin
tonight with a look at that mortgage settlement. It’s expected that two
million American homeowners could get relief from this. The deal between
banks, the Federal government and 49 states lays to rest allegations of
improper foreclosures based on so-called robo-signing — the practice of
seizing homes without the proper paperwork. Bank of America (NYSE:BAC),
JPMorgan, Wells Fargo (NYSE:WFC), Citigroup (NYSE:C) and Ally Financial
have signed on for the biggest single-industry settlement since cigarette
makers cut a deal with the Feds in 1998. $20 billion will go toward relief
programs for borrowers in trouble. That includes principal reductions,
refinancing help and other plans like principal forbearance for unemployed
borrowers.

HUDSON: Susie, the rest — some $5 billion in fines — will be split
between cash payments for borrowers who were wrongly foreclosed upon and
state and Federal governments. President Obama today called the deal a
landmark settlement and a step forward for the ailing housing market.

OBAMA: No compensation, no amount of money, no measure of justice is
enough to make it right for a family who’s had their piece of the American
dream wrongly taken from them. And no action, no matter how meaningful, is
going to, by itself, entirely heal the housing market. But this settlement
is a start.

HUDSON: The agreement leaves some housing analysts wondering how
much this settlement will actually help real estate though. Washington
bureau chief Darren Gersh tonight looks beyond the deal’s face value and
breaks down how much or how little, today’s foreclosure deal could impact
the housing market.

DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: When you hear
analysts talking about people being underwater in their homes, they should
be saying buried in debt instead. $700 billion is the amount that mortgage
debt exceeds the value of all houses that have negative equity. This
housing settlement shaves $10 to $30 billion off that amount, a tiny slice.

ADAM LEVITIN, PROFESSOR, GEORGETOWN LAW: So, about 1.5 percent of the
negative equity problem in the United States is addressed by this
settlement. It’s really a drop in the bucket.

GERSH: While many analysts doubt this settlement will do much, some
are more hopeful. Economist Mark Zandi isn’t focused on that $700 billion
figure. He says what matters is breaking the momentum of distressed sales
driving down home prices. And this settlement could help do that if it
nudges the number of distressed sales in the right direction.

MARK ZANDI, CHIEF ECONOMIST, MOODY’S ANALYTICS: Once that share is
moving south, house prices will stabilize and start to rise and once house
prices start to rise, then those people who are underwater, they’ve got an
incentive, a reason to hold on to their home.

GERSH: Another big question around this settlement is who takes the
financial hit when a bank cuts the principal on a mortgage. Critics say it
won’t be the banks.

LEVITIN: They have a choice between modifying one of their own loans
and modifying a loan that an investor owns. They’re going to modify the
loan that the investor owns.

GERSH: As you might imagine, the attorneys general who hammered out
this deal disagree.

TOM MILLER, IOWA ATTORNEY GENERAL: There are some homeowners that
can’t make the full payment, but they can make a part of it. And the part
that they make is more than the investor would realize on their
foreclosure. So it’s in everybody’s interest to do that modification.

GERSH: The controversy over who takes the hit is one reason Zandi
says it’s doubtful we’ll see widespread mortgage modifications that reduce
the amount borrowers owe on their homes.

ZANDI: It’s pretty hard to explain to one homeowner who didn’t get
the mod — the principal reduction mod why they didn’t when their
neighbor did. You know, why not me?

GERSH: The question of who gets help won’t be answered for some
time. The banks signing on to this settlement have three years to make good
on their commitments. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.

GHARIB: One thing that could help the housing market — low mortgage
rates. For the second week in a row, the 30-year fixed remained at an all-
time record low. It’s stuck at 3.87 percent. That compares to 5.05 percent
a year ago. Still, even with mortgages enticingly low, getting a loan these
days can be a big headache. Suzanne Pratt takes a look at one woman’s quest
for home, sweet home.

SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Dr. Farnaz Safi
is happy, having just purchased this two-bedroom condo in Cliffside Park,
New Jersey. But her path to property ownership was bumpy. Two years ago,
she had wanted to buy a different place, but went through hoops when trying
to get a loan from a large bank.

DR. FARNAZ SAFI, HOMEOWNER: It took about five to six months.
Finally, they said, no, we really can’t get the mortgage. You’ll need this
additional information, that additional piece of information. We’ll need at
least another two to three months. Quite honestly, I didn’t have that
time, so I pretty much pulled out.

PRATT: After taking a break from her search, Safi tried again —
this time, with a smaller bank.

SAFI: From the time that I put an offer in to the closing date was 26
days. They approved the mortgage in nine days.

PRATT: North Jersey Community Bank gave Safi that mortgage and a
better experience. But she is in the minority. Many Americans, no matter
where they go for a home loan, now find they need a bigger down payment,
piles of paperwork, and oodles of patience. To be clear, it’s not that
smaller banks have looser requirements, but they are, at least in some
cases, more nimble. North Jersey Community Bank CEO Frank Sorrentino says
his bank never offered easy money, even during the housing boom.

FRANK SORRENTINO, CEO, NORTH JERSEY COMMUNITY BANK: Since we’ve been
in existence, our credit standards have pretty much been the same. We have
this funny policy — we like to lend money to people who can actually pay
us back.

PRATT: The big unknown is what the more stringent loan process will
do to the U.S. housing market. Some say the pendulum has moved too far in
the wrong direction, making it too difficult for people to borrow and too
hard for the housing recovery to build a foundation.

SORRENTINO: I think having this — going from so loose policy to so
tight policy is not a good thing and there are people who can actually
afford to buy a home and move on.

PRATT: Housing expert Andrew Barrocas disagrees. He says lending
standards got too loose and now, they’re just right.

ANDREW BARROCAS, CEO, MNS: They are a lot more stringent than where
they were, but they’re right about at norm of where they should be in order
for banks to take the risk.

PRATT: As for Safi’s new place, she moved in two weeks ago. And
already, it’s home.

SAFI: I love it. I do!

PRATT: Suzanne Pratt, NIGHTLY BUSINESS REPORT, Cliffside Park, New
Jersey.


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