The five big banks that caught taking unfair advantage of their customers received what an editorial in The New York Times called a “wrist slap.” The LA Times called it “a big whoop” while the Wall Street Journal called it “election year shenanigans” stating that the banks engaged in a “little wrongdoing.”
Robosigning, denying eligible homeowners a loan modification and charging outrageous late fees that made it difficult for homeowners to get caught up in their payments merits a stronger description than “a little wrongdoing.” But they were all correct in predicting that it won’t do much to revive the real estate market. Unless, like www.reuters.com, you assume that banks will now be encouraged to flood the market with its backlog of foreclosures and the housing market can begin its recovery.
The settlement calls for nearly $20 billion in mortgage relief for homeowners underwater in their homes ( they owe more than its worth) in the way of principal reduction or for homeowners who need a loan modification in most cases reducing the monthly payments by reducing interest rates. Homeowners who were wrongly foreclosed upon get $2,000. This is where the “big whoop” part comes in. People lose homes and banks have to do a little more paperwork and in many cases are protected from future civil lawsuits resulting from their misconduct.
I know that some of you think that in the world of money, it’s buyer beware and all these homeowners should have known better. Maybe we should but since we don’t really have any formal education about financial literacy in this country, most of us are sitting ducks for anyone with a nice office and a “don’t worry” smile or “trust me, it’s okay” assurance.
Right now homeowners are at least $700 billion underwater in their mortgages. Unless the banks acknowledge this and work with homeowners and give them loan modifications or reductions in principle, some areas of this country are going to experience a lot more foreclosures and homeowners who walk away from a very bad situation.
Larimer County has seen a major reduction in foreclosures but we may see an uptick as the banks release the foreclosures that they have been holding on to. However with the activity we are seeing right now with buyers finally stepping up, any distressed housing won’t stay on the market for long. This summer could prove pretty interesting.