Philadelphia Inquirer

Down Payment On Housing Fix

The Philadelphia Inquirer — Tuesday, February 14, 2012

Inquirer Editorial

The $25 billion settlement among 49 state attorneys general, the Justice Department, and five major banks to compensate victims of wrongful foreclosures is a small but significant step toward easing the housing crisis.

But as one wary homeowners' advocate put it, "the devil is in the details." It always has been.

This much-heralded settlement seeks to end the practice of "robo-signing," employed by mortgage servicers that foreclosed on homes without proper documentation. Considering the Center for Responsible Lending reports that the nation is only halfway through the foreclosure crisis, settlement guidelines for future takings may clarify the process.

Victims who lost their homes and life savings get a mere $2,000. "It is too little for the damage that has been caused," said Phyllis Salowe-Kaye, of New Jersey Citizen Action.

Others will be able to refinance homes at lower interest rates. Banks will be forced to offer troubled homeowners principal and/or interest rate reductions.

But that's where the devil really is still in the details. As the crisis deepened, states, including New Jersey, and the federal government asked banks to help homeowners modify their mortgages by renegotiating payments. But banks weren't set up to modify mortgages, nor were some inclined to do so, which prevented those programs from having much impact. Worse, help often came when it was too late for homeowners to dig out of financial holes. The settlement wisely calls for a monitor to make sure banks are working with customers to avoid foreclosures.

Banks are protected from robo-signing prosecutions, but Attorney General Eric Holder said other forms of criminal and civil prosecutions are permitted. That's good because in some cases, mortgage brokers tricked families into taking out loans with exorbitant interest rates and falsified documents to secure mortgages for people who could never afford them. On the financial side, some institutions bundled toxic mortgages into investment instruments, sold them, and poisoned the market.

Those practices and many others still need to be addressed, and attorneys general in New York, California, and Delaware were right to hold out until they received guarantees that they could pursue investigations.

Economists say this settlement could begin to stabilize home prices, which are pushed down with every foreclosure. Optimists say that while the settlement probably affects less than a fifth of the mortgage market at best, industry standards may be set for the rest.

However, Americans can never forget how the combination of too little regulation, poor enforcement, and rapacious greed torpedoed the economy.

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