Last year, Washington joined in a multi-state $25 billion settlement with the country's five largest banks, which stood accused of illegally rushing homes into foreclosure. Some of the money was to be offered as compensation to people who lost their homes, and some to help people in danger of suffering the same fate. Yesterday, Attorney General Bob Ferguson triumphantly pointed to just-released results of the settlement's first year, saying that the numbers "exceed expectations."
Not everyone agrees with him.
Ferguson's rosy view is grounded in a report that came out yesterday from a monitor of the national settlement. According to the Office of Mortgage Settlement Oversight, the five banks involved--Chase, Bank of America, Citi, Well Fargo and Ally--have provided more than $45 billion of relief to 50,000 people.
In our state, Ferguson continued in a press release, the banks have shelled out $1.1 billion to 12,000 families. Many of those people, he continued, received "loan modifications or loan forgiveness, providing immediate relief and allowing families to stay in their homes."
Yet, Melissa Huelsman, a lawyer who frequently represents homeowners facing foreclosure, says Ferguson's release presents "a wildly exaggerated depiction of what's going on." You have to take a close look at the numbers, she says. " A great deal of the supposed write-offs are second mortgages." Those are the additional mortgages many people got to finance the overvalued properties common in the bubble years.
The salient point about second mortgages is that banks usually have to write them off anyway when a foreclosure occurs because they're not tied to the collateral of a house. So, Huelsman says, the banks "are getting credit" for something they'd have to do anyway.
It's the first mortgages that banks can collect on. And it's the first mortgages toward which these same banks often evince a far less forgiving attitude. The New York Times wrote about this phenomenon just this Sunday in a piece entitled "The Second Mortgage Shell Game." It cited the case of a man who took out what's called an "80/20" mortgage, the "20" being a second mortgage.
Take Tiberio Toro, a Queens resident who took out an 80/20 mortgage in 2006 when he purchased his home, and who now owes far more to the bank than his house is currently worth. Recently, Wells Fargo told him that it completely forgave his second loan. But at the same time, it declined to modify his first mortgage -- an adjustment Mr. Toro needs to get his monthly payment to a level he can afford.
So if banks don't modify first mortgages, people like Toro won't stay in their homes.
Still, Huelsman concedes that banks are more willing to modify first mortgages than they used to be, especially in Washington state. She credits a 2011 law that requires lenders to participate in mediation with homeowners facing foreclosure. As we reported last May, such mediation has had mixed results. But Huelsman says, the law at least "gets everybody in the room."