Those who have already lost homes to a foreclosure or a short sale — when a lender accepts less money from a sale than what the borrower owes — wouldn't likely benefit at all.
"It is certainly better than nothing," said Bruce Marks, chief executive of the nonprofit Neighborhood Assistance Corporation of America. "But for the millions who lost their homes, it reinforces the appearance that the government has not been on their side."
Monnette Holland had been anxiously waiting the settlement, wondering if it might save her four-bedroom home in Franklin, Virginia.
"It has been a nightmare," she said. "I was hoping that we could keep our home."
Holland had refinanced her house in 2006 with Countrywide, a firm that was later bought by Bank of America and that made up the bulk of toxic mortgage securities involved in the settlement.
Holland, a 65-year-old former legal secretary, used the proceeds from the refinancing to pay off auto loans and install a new roof and windows. But then her husband was forced into an early retirement at a paper mill. And Holland had to go on disability because of arthritis and other health problems.
The couple tried and failed several times to modify their mortgage, only to learn that its owner kept changing: After Countrywide, it was Bank of America, then Specialized Loan Servicing and most recently Bank of New York Mellon.
As an alternative to foreclosure, Holland listed her house — worth $270,000 at its peak — for less than $90,000 in a short sale. A buyer made an offer just days before the Justice Department settlement was announced Thursday.
The Bank of America settlement will include the appointment of an independent monitor to review the consumer relief. This could take weeks and mean that "thousands of people who right now are in default or foreclosure" will miss the chance to reduce their mortgage balances, said Shanna Smith, president of the National Fair Housing Alliance.
Smith's organization has investigated the fallout from the foreclosures. It has filed a complaint with the Department of Housing and Urban Affairs that banks failed to maintain properties after borrowers defaulted. The alliance said it found that Bank of America enabled foreclosed homes in minority communities in Orlando, Denver, Memphis, Atlanta and elsewhere to slide into disrepair.
As part of the consumer relief, Bank of America has essentially pledged to help remedy the neighborhood blight its neglect helped enable when it caused foreclosed homes to be auctioned at steep discounts, Smith said.
"Bank of America created the problem," she said.
The agreement with Bank of America caps a trio of deals over the past nine months. Each has been designed to punish some of the country's leading financial institutions for their roles in bundling subprime mortgages into securities misleadingly sold as safe investments despite the high likelihood that borrowers would default.
JPMorgan Chase & Co. agreed to a $13 billion settlement while Citigroup reached a separate $7 billion deal. Though the JP Morgan chase settlement was announced in November, the planned $4 billion in relief has yet to benefit many homeowners, according to the New York-based Home Defenders League.