Get breaking news alerts via email

Click here to manage your alerts
Foreclosures deal aims to heal housing sector

Mortgages » Experts say accord will cause short-term pain but clear up backlog.

First Published Feb 10 2012 05:54 pm • Last Updated Feb 10 2012 11:53 pm

Washington • The landmark $25 billion settlement between major banks and state and federal governments is aimed at doing more than just helping people who lost their homes through improper foreclosures.

It’s an attempt to fix the biggest weak spot in the nation’s economy, the housing sector. Although analysts are unsure the cure will take, the outcome could help determine whether voters give President Barack Obama a second turn in office next fall.

At a glance

More information for homeowners

» www.NationalForeclosureSettlement.com

» www.HUD.gov

» www.DOJ.gov

» Bank of America: 1-877-488-7814

» Citi: 1-866-272-4749

» Chase: 1-866-372-6901

» Ally Financial (GMAC): 1-800-766-4622

» Wells Fargo: 1-800-288-3212

» Dial 211 to reach HUD-approved housing counselors

Join the Discussion
Post a Comment

By many measures, the economy is slowly improving. Unemployment is down, consumer spending is up, and financial markets have regained the ground they lost in the 2008-09 financial crisis.

The housing market is the last holdout, with home prices nationwide down nearly 34 percent from their peak in 2006, according to real estate data firm CoreLogic. The average home is now worth what it was in 2003.

Although Thursday’s settlement originated more than a year ago as an effort to discipline lenders for improper foreclosures, it has evolved into a housing relief package.

Most of the money — $17 billion — is earmarked for people who are struggling to make their payments, chiefly by reducing the amount of principal on their mortgages. An additional $3 billion will be spent by the banks to refinance mortgages of homeowners who are current on their payments but owe more than their homes are worth.

Utah is receiving an estimated $171 million in money, reductions in mortgage principals and loan modifications as its portion of the deal.

"This isn’t just about punishing banks for their irresponsible behavior," said Housing and Urban Development Secretary Shaun Donovan. "It’s also about requiring them to help the people they harmed by funding efforts to help homeowners stay in their homes."

For Obama, whose administration pushed hard for a deal, an upturn in the housing market would be a boost to his re-election hopes this fall. The banks receive incentives to provide relief within 12 months.

"This isn’t just good for these families," Obama said of struggling homeowners. "It’s good for their neighborhoods, it’s good for their communities, and it’s good for our economy."

story continues below
story continues below

There’s broad, bipartisan agreement on that. After hectic last-minute negotiations this week, 49 state attorneys general — 25 Democrats and 24 Republicans — signed on to the long-sought settlement.

Only Oklahoma Attorney General Scott Pruitt, a Republican who reached a separate, more narrow settlement, did not join the broader deal.

Julio Zapata, 44, of Diamond Bar, Calif., is one of the struggling homeowners the agreement is supposed to help. But Zapata, a medical equipment technician, is skeptical that the banks will live up to their promises.

Zapata said he had trouble making his payments, and after a two-year battle, he recently persuaded his lender to alter the terms of his loan. He won a small reduction in payments but is still not sure he can keep the house without another modification.

Housing experts say the settlement probably will lead the banks to pick up the pace of foreclosures, which they have kept in low gear because of the pending settlement.

That will produce pain for homeowners and could push prices down further — at least temporarily. But clearing up the foreclosure backlog created by federal and state investigations should help heal the real estate market.

"The servicers will start working through those big backlogs of foreclosed homes … and that will put downward pressure on home prices," said Celia Chen, a housing economist at Moody’s Analytics.

Nationally, just $1.5 billion from the settlement will go directly to people who lost their homes in foreclosure proceedings from 2008 through 2011 that included botched paperwork and other servicing problems that triggered federal and state investigations.

Those people — an estimated 750,000 — would receive checks of $1,500 to $2,000.

The deal also includes incentives to lenders to provide assistance to homeowners within the next year, when it could be the most help to a housing market yet to hit bottom.

Some argue that the settlement should have done more to help people who were victims of wrongful foreclosures.

"It is one small step in the direction of justice," said Ed Leamer, director of the University of California-Los Angeles Anderson Forecast. "It is an ounce of justice, but we need a pound of justice."

Copyright 2014 The Salt Lake Tribune. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Top Reader Comments Read All Comments Post a Comment
Click here to read all comments   Click here to post a comment

About Reader Comments

Reader comments on sltrib.com are the opinions of the writer, not The Salt Lake Tribune. We will delete comments containing obscenities, personal attacks and inappropriate or offensive remarks. Flagrant or repeat violators will be banned. If you see an objectionable comment, please alert us by clicking the arrow on the upper right side of the comment and selecting "Flag comment as inappropriate". If you've recently registered with Disqus or aren't seeing your comments immediately, you may need to verify your email address. To do so, visit disqus.com/account.
See more about comments here.
Staying Connected
Contests and Promotions
  • Search Obituaries
  • Place an Obituary

  • Search Cars
  • Search Homes
  • Search Jobs
  • Search Marketplace
  • Search Legal Notices

  • Other Services
  • Advertise With Us
  • Subscribe to the Newspaper
  • Access your e-Edition
  • Frequently Asked Questions
  • Contact a newsroom staff member
  • Access the Trib Archives
  • Privacy Policy
  • Missing your paper? Need to place your paper on vacation hold? For this and any other subscription related needs, click here or call 801.204.6100.