Some relief, such as principal reduction, is not counted as a dollar-for-dollar match under the terms of the settlement, accounting for the total relief provided being larger than the settlement amount. Many commentators have questioned the disproportionate amount of relief given out through second lien modifications.
Some of the report’s other key findings include:
• Illinois participants received more than $1.4 billion in consumer relief through the settlement.
• Ally is the only bank to claim it has met its obligations under the settlement, having provided $257 million in credited relief ($556 million gross relief). This has been partially certified by Smith.
• Earlier this month, Smith’s office entered into an information-sharing agreement with the Consumer Financial Protection Bureau, giving both agencies better tools to detect “patterns or practices of violations of the Servicing Standards.”
• Smith notes a “significant increase” in the number of complaints his office has received in the past three months from borrowers, jumping to an average of 830 per month. More than half of the complaints related to the loan modification process or servicers’ customer service.
Another figure of particular note is that, of the 20,044 Illinoisans who received some form of assistance in this time period, nearly 3,800 received it in the form of principal reduction, totaling just over $340 million.
This progress report shows that principal reduction is bringing badly needed relief to some Illinoisans facing foreclosure, but that avenue is closed off to even more homeowners. Since the robosigning settlement, which required a majority of aid to come in the form of writing down principal, principal reductions have been taking on a growing but still inadequate role in addressing underwater mortgages.
Principal reduction is a critical tool in addressing negative equity, which has been shown to increase the likelihood of foreclosure, impede foreclosure prevention programs, and destabilize communities.
Still left out in the cold completely, however, are underwater borrowers whose mortgages are guaranteed by Freddie Mac or Fannie Mae. Acting director Ed DeMarco of the Federal Housing Finance Agency (FHFA), which has regulatory authority over Freddie and Fannie, has not allowed principal reduction to be part of FHFA’s response to the foreclosure crisis.
With Fannie and Freddie holding around 60 percent of mortgages—including 357,000 underwater mortgages in Illinois—attempts to recover from this crisis will be hampered until principal reduction becomes an option for underwater Fannie and Freddie mortgage-holders.