HUD Secretary Shaun Donovan faced the Senate Banking Committee today, and he said that the foreclosure fraud settlement will shortly be made public.
Democrats on the panel voiced support for efforts to help these underwater homeowners, while some Republicans took jabs at the recent $25 billion settlement between the government and the nation’s largest lenders over foreclosure abuses.
Alabama Senator Richard Shelby, the leading Republican on the panel, suggested the settlement could be overly broad. “Homeowners who suffered no legal harm appear to be eligible for compensation,” he said.
Donovan said court filings spelling out the terms of the settlement will be made public as soon as next week and will provide further clarity on who is being helped.
The reference to helping underwater homeowners refers to the presence of FHFA chair Ed DeMarco at the hearing. Democrats assailed him for his agency’s refusal to allow Fannie Mae and Freddie Mac to engage in principal reduction.
But let’s focus on Donovan for a minute. This way of dealing with the settlement, where the initial announcement comes out in broad strokes with no details, only to follow up with a court filing weeks later, is terrible for accountability and transparency. If the public wants to see the settlement terms right now, they can’t. They only get a view of it after it goes into court, at which point nothing can be changed. There are a lot of names for that, but none of them sound like democracy.
Shelby, incidentally, managed to play all sides during this hearing. While saying that homeowners who suffered no “harm” (I guess filing illegal documents to foreclose on someone doesn’t count) could get benefits from the settlement, he then added that the benefits “appear to come up short”:
U.S. Senator Richard Shelby questioned the fairness of a $25 billion mortgage servicing settlement, saying it “appears to come up short” for borrowers who wrongfully lost their homes […]
“Although having the settlement compensate as many people as possible may make sense politically, settlement funds should compensate homeowners who suffered actual harm and deter future violations of law,” the Alabama senator said.
“Homeowners who were wrongfully foreclosed upon will still likely have to pursue the remainder of their claims in court or through financial regulators,” Shelby said. “In contrast, many homeowners who suffered no legal harm appear to be eligible for compensation as well.”
Shelby’s not wrong about the inadequacy of the settlement, as much as I think he’s incorrect about the idea that borrowers subject to systematic violations of property law weren’t “wronged.”
Elsewhere in the hearing, Donovan pulled out statistics on the newly tweaked mortgage refinancing program that were no different than the average level of refinancings on the same loans in any given month before the tweaks. Donovan and some housing experts claim that the updating of Desktop Underwriter in March will allow a flood of refinancings to emerge, because at that point, banks will not be held liable for representations and warranties claims on the original loan if it defaults. Basically this program has done zilch for four months, so let’s wait and see if this expected flood comes to pass.