Earlier this year, forty-nine state attorney generals and the federal government announced a $25 billion settlement with five major banks that resulted from the bank’s illegal foreclosure practices. The settlement included $2.5 billion for the states to assist homeowners avoid foreclosure, help stabilize communities adversely affected by foreclosures, and to prosecute fraud. Enterprise Community Partners, an organization that helps consumers find affordable housing, recently released a report that found less than half of the money that was allocated to the respective states was not used for its intended purpose. However, their assessment of Massachusetts’ use of the settlement funds is based on incorrect assumptions regarding the structure of the settlement, which could call into the question the validity of the study’s conclusions . Of course, this assumes that the information on the attorney general’s website is correct.
According to NationalMortgageSettlement.com, there are key provisions regarding how the settlement money is supposed to be used by the respective states involved in the lawsuit against the five major banks that were sued for their illegal foreclosure practices: Ally (formerly GMAC), Bank of America, Citi, JP Morgan Chase, and Wells Fargo. The key provisions are, “immediate aid to homeowners needing loan modifications now; immediate aid to borrowers who are current, but whose mortgages currently exceed their home’s value; payments to borrowers who lost their homes to foreclosure; immediate payments to signing states; first ever nationwide reforms to servicing standards; and state AG oversight of national banks for the first time.”
The report claimed that only twenty one of the states that received settlement funds has used over 90% of the money for assisting borrowers; six states haven’t used any of the settlement money for the intended purposes, and seven other states has used less than 25% of its award on the intended use.
The also report claimed that Massachusetts has used 84% of the settlement for its intended use, but if one compares the settlement details and how the funds will be allocated on the commonwealth’s website with how the report’s summary claimed the money was dispersed, it appears Enterprise Community Partner’s assessment of the commonwealth’s disbursement of the funds is inaccurate .
According to Attorney General Martha Coakley’s website, the settlement included about $225 million in loan modifications, about $14.6 million in cash payments to borrowers, nearly $33 million in refinanced loans to underwater borrowers, and $45 million to assist homeowners. The Enterprise Community Partners’ study incorrectly based their claim that the commonwealth used 84% of the $45 million award (actually $44,450, 668) on the fact that it included the $14.6 million disbursement that was to be paid directly to borrowers. The study also found that $6.9 million went towards a state general fund for civil penalties and fees, and $26 million went toward the creation of Homecorp. Homecorp was launched in April.
In addition to the $26 million allocated for Homecorp, the AG’s website supports the Enterprise Community Partners study’s claim that $6.9 went to the general fund, but the study didn’t include another $1 million that went toward the Local Consumer Aid Fund, which helps individual borrowers with mediation services.
Based on the figures published on Coakley’s website, and subtracting the $14.6 million that was not part of the payout directly to the commonwealth, about $33.9 million out of the $44,450, 668 has been used or allocated for its intended purposes so far, which is about 76% of the settlement’s allocation to Massachusetts, not 84% . However, the fact that the state has used 76% of the funds shouldn’t necessarily be interpreted as an indication that the funds are not being used or are going to be used appropriately. According to the AG’s website, the rest of the money will be used for “future implementation”.
There are two different initiatives within Homecorp. Sixteen million dollars will go toward helping borrowers prevent unnecessary foreclosures and helping those who have already been foreclosed upon to find housing. The remaining $10 million will toward grant programs for individual borrowers and to communities that have been affected by the foreclosure crisis.
This past August, the attorney general announced that Homecorp awarded more $19 million in grants with $7.4 million going to the Massachusetts Association for Community Action (MASSCAP) to implement the Borrower Recovery Initiative, $6 million going to the Massachusetts Legal Assistance Corporation (MLAC) and the National Consumer Law Center (NCLC) to administer the Borrower Representation Initiative, and $5.8 million going to the municipality and community restorative grants to 18 cities, towns, and organizations―mostly in the eastern part of the state. Just yesterday, Coakley’s office announced an additional $4 million for 18 organizations across the commonwealth.
If you have questions about Homecorp, call 617-573-5333.
If you are planning on buying or selling a home in the Pioneer Valley, make your first call to Michael Seward at 413-531-7129.