In any out-of-court settlement for alleged wrongdoing, the test of whether prosecutors got a good deal rests on the answers to three questions:
Does it hold the miscreants accountable?
Does it make victims whole?
And does it prevent similar misconduct in the future?
Former UCLA economist Chris Thornberg told KPCC-FM that California's $18 billion share is a drop in the bucket considering that there are about $1.3 trillion worth of outstanding loans in the country.
"From my perspective, it's more gesture than reality," he said.
Orange County homeowners stand to get an estimated $1.1 billion from the multi-state foreclosure settlement reached between state attorneys general and five leading banks, the California Attorney General's Office reported Thursday.
Attorney General Kamala Harris told reporters she expects the state will get up to $18 billion in relief under settlement terms, of which an estimated $7.7 billion will go to Orange and three other Southern California counties – nearly $4 billion to Los Angeles and $2.7 billion to the Inland Empire.
California will get up to $18 billion in relief under a multi-state foreclosure settlement, of which an estimated $1.1 billion will go to Orange.
Nearly $4 billion will go to Los Angeles and $2.7 billion to the Inland Empire.
Thursday’s $25 billion agreement by five banks to end a 16- month investigation of abusive foreclosure practices fails on the first two counts.
And we won’t know for some time whether it is successful on the third.
Nonetheless, the deal is in the country’s interest because it clarifies the liabilities of banks that filed bogus court documents to speed up repossessions. That could clear the clogged foreclosure process and, more importantly, help bring a moribund real-estate market back to life.
The state has about 2 million homeowners who owe lenders more than their homes are worth. At least a third of those "underwater" homeowners may qualify for benefits under the settlement, an expert said.
California was one of four holdout states to join the settlement Thursday, bringing the total signed onto the deal to 49.
But many in Orange County and throughout the state complained that the amount of relief will be too little, especially for homeowners who already lost their homes through shoddy foreclosure practices called "robo-signing."
Stella Matadama, housing coordinator and foreclosure counselor at the Consumer Credit Counseling Service of Orange County, worried that principal reduction promised under the plan will fall short.
Matadama had read reports that the maximum benefit would be $20,000, while the average underwater homeowner owes $50,000 more than their homes are worth.
"It's way too little," Matadama said. "A $20,000 write down in Orange County, that's nothing. (And) those who went through the foreclosure process, they only get $2,000.
It's kind of like a slap in the face."
"It is too little, too late," added Sean O'Toole, founder and CEO of ForeclosureRadar.com.
"There were $6 billion in loans foreclosed on (in California) last month alone, and that is down from a peak of $12.6 billion in July of 2008," O'Toole said. He added that there's been a total of $435 billion in California loans that have gone through foreclosure since the crisis began.
"The dollar amount considered here is insignificant, and though it may help some families, it won't turn the tide," he said.
State officials couldn't provide breakdowns of how the $1.1 billion would be distributed in Orange County. More than 98,000 Orange County homeowners, or 17.6 percent of all residential borrowers here, were under water, according to Santa Ana-based CoreLogic.
Although borrowers with loans held or backed by mortgage giants Fannie Mae or Freddie Mac don't qualify for relief under the settlement, it is estimated that only about 40 percent of local loans fall into that category.
More than 35,000 Orange County homes have gone through foreclosure since 2008, DataQuick figures show.
The settlement "is a step in the right direction," said Glenn Hayes, president of the Neighborhood Housing Services of Orange County, which helps homeowners trying to avoid foreclosure. "People have been hurt, and everybody, including the banks agree it wasn't handled the way it should have been."
"This will help homeowners currently under water on their mortgages to either reduce their loan amounts, refinance or complete a short sale," added Paul Scheper, my friend and regional manager for Greenlight Financial Services.
In a nut shell there's still too few details about how the money will be doled out to know if the plan will provide enough help.
Let’s hope they don’t mess up like they did with the loan modification process,there was no standardization of who gets the loan mod or not.
Last minute points;
The deal does have teeth.
It calls for an outside monitor and for heavy penalties if banks don’t make good on their commitments.
More important, banks will be given credit only for what they actually accomplish for homeowners -- and not for any refinancing offers that borrowers refuse.
This rightly gives the victims some leverage.
If a bank falls short of its agreed benchmarks, it must pay the difference plus a penalty. And it must meet all its obligations in three years.
The settlement also reverses the banks’ incentives to foreclose on families rather than keep them in their homes with loan forgiveness. Until now, banks had been loath to reduce principal amounts because it meant recognizing losses on their balance sheets.
This deal awards more credit for principal reduction and less for lowering interest rates or extending payment terms.
Banks have calculated that the settlement is in their interest, even though it means they may have to continue paying huge mortgage-related litigation costs. The deal enables them to predict their legal exposure.
Even better, it could help the housing market recover.
Banks own outright almost half a million homes and have 2 million more in various stages of foreclosure.
Such so-called shadow inventory has been a drag on the market, which after six years remains depressed, holding back the overall recovery.
With this settlement, banks can clear out their backlog of stalled foreclosures. In the short run, that may drive prices down, but it will also help the housing market find its bottom faster.
Only then can home prices, which have fallen by more than a third since 2007, begin to rise again.
Borrowers can finally start to rebuild equity.
But beware politicians put this together and you know we can trust them, right?
It takes an election year to get the politicians to think of us.
John Hacker Unity West Retention Manager
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