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Wall Street Journal: Citigroup Pact Has Detailed Plan for $2.5 Billion in Relief to Consumers

U.S. authorities are giving Citigroup Inc. detailed instructions for providing $2.5 billion in aid to consumers as part of its multi-billion-dollar mortgage-securities settlement—after criticism that previous pacts gave banks too much leeway in disseminating the funds.

Citigroup’s $7 billion settlement with the Justice Department over the sale of flawed mortgage securities includes an agreement by the bank to provide $820 million worth of loan forgiveness and other assistance, plus nearly $300 million in refinancing. The money is also earmarked to help with down payments, donations to community groups and financing for rental housing.

These requirements, outlined in a 15-page appendix to the agreement, provide more specificity for consumer assistance than a $25 billion 2012 state/federal settlement with Citigroup and four other banks over mortgage-servicing problems. They also are more detailed than a November 2013 settlement with J.P. Morgan Chase & Co. over similar flawed mortgage securities sold to investors.

At a press conference in Washington on Monday, Associate Attorney General Tony West said the department aimed to improve on previous settlements by establishing an “an innovative consumer relief menu—one that not only includes the principal reductions and loan modifications we’ve built into previous resolutions, but also new, consumer-friendly measures.”

The Citigroup settlement, unlike previous pacts, directs the bank to provide half of its loan assistance to particularly hard-hit parts of the country. It also mandates that borrowers whose loan balances are cut won’t remain “underwater” —or owe more on their homes than their properties are worth.

The J.P. Morgan settlement addresses similar issues, but in a less targeted way. It gave the bank a bonus for providing aid to hard-hit areas, but set no specific requirement. In addition, the J.P. Morgan settlement encourages loan write-downs but does not specify how much of a borrower’s debt must be forgiven. The Citigroup settlement contains $180 million in financing for affordable rental housing—a provision not included in other settlements.

“This settlement is far more nuanced than previous settlements with respect to consumer relief,” said Andrew Jakabovics, senior director for policy development and research Enterprise Community Partners, a large affordable-housing nonprofit group.  The pact, he said, “reflects many of the best practices we’ve seen develop with respect to creating sustainable loan modifications.”

A Justice Department official said the consumer-assistance portion of the Citigroup settlement reflects refinements to the government’s thinking after previous settlements. In addition, the official said the smaller size of Citigroup’s mortgage-lending portfolio caused the government to consider additional avenues for relief because the bank had fewer loans to modify.

There has been tension between the Obama administration and liberal activist groups over efforts to resolve cases related to banks’ mortgage-crisis conduct.

Consumer groups have been unhappy with previous settlements of mortgage-related cases. For example, the 2012 mortgage-servicing settlement allowed banks to receive credit for short sales, in which a bank agrees to allow the sale of a property with a mortgage worth more than the home’s value, and for granting “deeds in lieu of foreclosure,” where a homeowner voluntary surrenders the home.

Some activists are still skeptical of the government’s settlements with the financial industry. Kevin Whelan, national campaign director for the Home Defenders League, an activist group representing homeowners, said there’s been no noticeable impact from last fall’s J.P. Morgan settlement.

“We haven’t seen any evidence that they’ve done anything at all,” Mr. Whelan said.

No statistics on the J.P. Morgan settlement have been released. A J.P. Morgan spokeswoman declined comment.

Joseph Smith, a former North Carolina banking regulator, is serving as the independent monitor overseeing the J.P. Morgan settlement and is expected to release a report on its progress in the coming weeks.

Mr. Smith also served as the independent monitor for the $25 billion settlement reached in 2012.

Thomas Perrelli, a former Justice Department official who helped broker the 2012 mortgage settlement, will serve as the monitor of the Citigroup agreement. Mr. Perrelli is now at the law firm Jenner & Block in Washington.

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Home Defenders to DOJ: Show Us the Money

On Tuesday July 8, homeowners and community groups took peaceful action at US Attorney offices around the country, delivering thousands of petition signatures and demanding greater oversight and accountability for settlements the Justice Department is reportedly negotiating with big banks. The actions, which took place in at least 10 cities, were a part of nationally coordinated effort under the banner “Show Us The Money”– a sentiment felt by homeowners still waiting to see the relief promised from last year’s record-breaking $13 billion settlement with JPMorgan Chase.

In addition to a petitions, the groups delivered a letter addressed to Attorney General Eric Holder, requesting that he personally intervene to ensure that the terms of previous mortgage settlements are fully implemented and that future settlements provide greater relief to the consumers harmed by the foreclosure crisis in the first place. As the events were taking place, news of a possible deal with Citigroup worth $7 billion resurfaced. Bank of America is expected to reach a deal with the Justice Department soon that could top $17 billion bringing the total to close to $50 billion – money that struggling homeowners and hard hit communities could desperately use.

Sergio Ceballos Aguilar, one of the homeowners who hoped the settlement with Chase would help him save his home from foreclosure, took part in the day of action, joined by members of Occupy Homes MN and the Home Defenders League. The group marched to Chase Bank’s Minneapolis headquarters, where they released a banner held by balloons that read “Sergio’s House: Show Me the Money,” before stopping at US Attorney Andrew Lugar’s office to present the letter.

“I want to be able to support my children with stable housing on the street they grew up on. All we ask for is a fair negotiation, to sell my home back to me so that I can continue to pay for my home,” said Ceballos Aguilar. It is terrible that JPMorgan is pulling the same trick on our country that it is pulling on me! First they negotiate, then they retreat before sealing the deal.”



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NY Times: What Housing Recovery?

The Friday, May 9 edition of the New York Times has a powerful Op-Ed from Occidental College professor Peter Drier, the co-author of a new study released yesterday (see press release here) showing that for many people, especially those hardest hit – moderate-income households, and African-Americans and Latinos – when the big banks destroyed our economy, the so-called “housing recovery” simply doesn’t exist.

Not only are 20% of all homes with mortgages still underwater, but nearly 5 million households have been foreclosed on since the banks created this crisis. All this represents permanent and continuing damage to communities across the United States.

Drier’s op-ed does reinforce the calls that Home Defenders have been making since we started taking action in the summer of 2012, as the final four paragraphs make plain.

“The Obama administration created several initiatives to help troubled borrowers, but these programs do not require banks to reset loans as a condition of getting federal funds. The government’s Home Affordable Modification Program has helped only one-quarter of the four million homeowners it was supposed to reach.

Worse, the federal government has actually been an obstacle to reform. The Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, has refused to allow these two mortgage giants to reduce the principal on underwater mortgages that they own or guarantee. All it would take is for President Obama’s new appointee as F.H.F.A. director, former Representative Melvin Watt, to change the policy, an action that does not require congressional approval. He should do so immediately.

Meanwhile, faced with this predicament, some municipalities have been trying to take matters into their own hands. Late last year, Richmond, Calif., was the first city to develop a plan to use its power of eminent domain to buy underwater mortgages at their current market value and to refinance them, but many other localities are likely to follow. A number of responsible for-profit and nonprofit lenders stand ready to do business with them so that local governments don’t have to use tax dollars to purchase these loans.

Dealing with this problem on a city-by-city basis may not be the most efficient way to confront a national crisis, but in the face of Wall Street intransigence and federal indifference, cities have had to find their own way to restore the lost wealth of their constituents.”

You can read the entire thing below the fold. Or at the New York Times here:

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