Deal reached over abusive foreclosure practices
Newly constructed homes are shown in Rancho Cucamonga, Calif. Will the new foreclosure deal reached actually help families in trouble?
Jeremy Hobson: Nearly all the states and the federal government have reportedly reached a $25 billion settlement with five of the nations largest banks over abusive foreclosure practices.
Marketplace's David Gura reports.
David Gura: There have been four million households foreclosed on since 2007; 750,000 victims of foreclosure fraud will get checks for just about $1,800. Real estate experts say that’s not a whole lot of money.
Maryland’s attorney general, Doug Gansler, says his state will get $1 billion of the $26 billion settlement, and most of that will go to folks who are on the brink of foreclosure -- homeowners who are delinquent on payments.
Doug Gansler: Sixty percent of that fund will be used for principle reduction, so people will be more likely to stay in their homes, and also for loan modifications of other sorts.
Gansler says this is just the beginning. The settlement doesn’t preclude future lawsuits about issues that led to the housing crisis, and states’ attorneys general plan to go after more than just these five big banks.
In Washington, I'm David Gura, for Marketplace.
Hobson: Let's get reaction now from Katie Porter. She's a consumer law professor at the University of California, Irvine, and she joins us live. Good morning.
Katie Porter: Good morning.
Hobson: So Katie, what does this mean for the housing market?
Porter: Overall, for the housing market, not a whole lot. The numbers sound big, but they're dwarfed by the size of the housing problem. We've heard about one million homeowners may be helped by the settlement -- that's probably a best case estimate. But there are 14 million homeowners in trouble -- in foreclosure, behind on their payments, or they own more than they're worth. So it's not an adrenaline shot to the housing market; it's more like a vaccine that's only going to help a small group of people.
Hobson: Only going to helped a small group of people -- so what's the importance of this settlement in your view?
Porter: I think it matters for the banks -- being able to put the investigation and the uncertainty of liability from the attorneys general behind them. Although there are still some abilities for some parties to sue them, and that's important concern that will be ongoing.
For the homeowners, I think the impact of the settlement is going to turn on whether or not the government has really figured out how to reach out to them, and how to process relief. So over and over again, we've seen: government's here to help, the programs are going to work. And they always keep underserving families.
The other thing is, we're saying three years here for the settlement to be fully effective. That's a long time for families in trouble to have to wait.
Hobson: Katie Porter, consumer law professor at U.C. Irvine, thanks a lot.
Porter: Thank you.