Elizabeth M. Lynch, an attorney at MFY Legal Services, exposes more moral hazard and makes clear suggestions.
Under the deal, announced by the Federal Reserve and the Office of the Comptroller of the Currency, the mortgage servicers will pay $3.3 billion to borrowers who went through foreclosure in 2009 and 2010 and an additional $5.2 billion to reduce the principal or the monthly payments of borrowers in danger of losing their homes.
A lesser-known but equally grave problem is that banks have been given a backdoor mechanism to continue foreclosures at the same pace as before.
The problem involves second mortgages, which millions of homeowners took out during the housing bubble.
The second mortgages have given the banks a loophole: each dollar a bank forgives goes toward fulfilling its obligation under last year’s settlement. But many lenders have made it a point to almost exclusively modify secondary loans while all but ignoring the troubled, larger primary mortgages.
There is a lesson to be learned from the deficiencies of the National Mortgage Settlement. And the new deal reached by the Fed and the comptroller of the currency provides an opportunity to get right what the 49 attorneys general got wrong.
…the government must clearly require that relief be given in the form of first-mortgage modifications. …the settlement should direct the banks to provide relief in the ZIP codes hardest hit by predatory lending.
…we need real transparency to monitor the new settlement. That means that the public should easily be able to determine who is getting relief, and how.