Settlements Underscore Damage Done In Housing Crash
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Some other news: Some of the biggest banks in the country have agreed to pay more than $18 billion to settle allegations of wrongdoing in their mortgage lending. That's today's "Business Bottom Line."
Bank of America said yesterday it would pay more than $10 billion to the mortgage company Fannie Mae because of bad loans sold during the housing boom. And in a separate settlement, 10 banks agreed to pay more than $8 billion in total, to settle claims that they made errors in foreclosing on people's homes. NPR's Jim Zarroli reports.
JIM ZARROLI, BYLINE: These two settlements aren't really related but together, they underscore how damaging the housing crash was for homeowners, and how pervasive a problem it's been for banks.During the housing boom, a lot of banks wrote risky mortgages that later turned sour. And the mortgage companies Fannie Mae and Freddie Mac, which purchase home loans, found themselves stuck with a lot of bad debt.
Guy Cecala, publisher of Inside Mortgage Finance, says Fannie and Freddie later sued the banks, saying they had lent money to risky borrowers.
GUY CECALA: There are, literally - you know, tens of billions of dollars of claims outstanding to many lenders. Out front, by far, has been Bank of America.
ZARROLI: Cecala says Bank of America was never a big player in the risky mortgage market. But in 2008, it bought Countrywide Financial - which was. And it became legally responsible for its debts.
Yesterday, the bank said it had agreed to settle the claims filed by Fannie Mae. Cecala says the bank was under pressure to make peace with Fannie Mae.
CECALA: Investors basically hammered Bank of America because it had this huge liability to Fannie Mae. And they saw it on their earnings release every quarter, and it had a negative effect.
ZARROLI: When the mortgage market finally collapsed around 2008, a lot of lenders began foreclosing on homeowners. And it soon became clear that a lot of them were cutting corners in the foreclosure process. That was the genesis of yesterday's second settlement. Bank officials were accused of signing foreclosure documents without adequately reviewing them.
Alys Cohen is with the National Consumer Law Center.
ALYS COHEN: The banks were not holding up their end of the bargain. You're not supposed to be able to take someone's house if you don't have the authority to take their house.
ZARROLI: Cohen says these weren't just paperwork errors. She maintains that some homeowners might have been eligible for loan-modification programs that would have saved their properties, if banks hadn't rushed them into foreclosure. But it was never clear how many homeowners were hurt by the errors, and whether they would have lost their homes anyway. Regulators set up a program to review the documents of people who'd lost their homes. But Guy Cecala says the program wasn't a big success.
CECALA: There were relatively few borrowers that responded to the request to step forward. And the ones that did, the reviewers found very little evidence of actual losses.
ZARROLI: But critics say there were problems with the program. For instance, the people who reviewed the documents weren't well-trained in what to look for. So they say the result underestimates how much people lost as a result of bank error.
Yesterday, U.S. officials said they had let the program expire. They also said 10 banks had agreed to pay more than $8 billion to victims of foreclosure error. Alys Cohen says it's good that some money is going to homeowners.
COHEN: That said, the total amount is woefully inadequate, and so significantly undercompensates homeowners, that it raises real questions about - about the regulators.
ZARROLI: Federal regulators say they were able to get some data about how widespread these bank errors were, and they will release it down the road. In the meantime, they say it's time to provide at least some money to the victims of bank error.
Jim Zarroli, NPR News, New York.
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