For more than a year, the foreclosure crisis has raged across the country and claimed millions of families, whole neighborhoods, and now the global credit market as its victims. Congress has mostly shown indifference to this crisis, refusing to consider the most logical measures to stanch the record flow of foreclosures even while forking over nearly a trillion dollars to the corporations that put us in this mess. While the Hope for Homeowners program created this summer could provide some relief to delinquent borrowers, it is a voluntary industry program that is not yet firing on all cylinders. The House of Representatives has at least passed some milquetoast regulations to curb future predatory lending, but the issue has yet to surface in the Senate. Not exactly a New Deal.

Amid this backdrop of federal lethargy and inaction comes Monday’s bombshell announcement that eleven state attorneys general have settled with Bank of America and won $8.4 billion worth of modifications to fix up to 400,000 predatory Countrywide loans. More than any other action taken to date, this settlement provides a new model and a road map for actually fixing the problem underlying our deep economic woes, which is that too many Americans cannot afford the mortgage. Through interest rate reductions to as low as 2.5 % and principal write-downs, Countrywide will restructure mortgages so that borrowers are not paying more than 34% of their income toward all housing costs. Critically, this agreement also takes the first step toward addressing the coming crisis with resetting Payment Option ARMs, negatively amortizing loans where borrowers can choose monthly payments that increase their overall debt. Like the FDIC’s work with modifying IndyMac loans, this mandatory process will be streamlined and automated to really put a dent in the number of foreclosures from these loan pools.

Although not as high-profile as Congress, state attorneys general have a vital role to play in protecting consumers from toxic lending, and winning relief for struggling families. This settlement is two orders of magnitude larger than the conclusion of the 50 state settlement against Household Beneficial in 2002, and provides a clear model for litigating against other major predatory lenders to win mandatory modifications, stop foreclosures, and provide assistance to those who have already lost their homes. Indeed, ACORN has been keenly interested in the potential of attorneys general to solve this crisis, and released a report in June entitled, “Attorneys General Take Action: Real Leadership in Fighting Foreclosure.” In addition to evaluating current best practices across the nation, the report called for cooperative, multi-state litigation like that begun by California and Illinois and resulting in this week’s historic announcement.

Among the best practices highlighted in the report was the creation of the State Foreclosure Prevention Working Group, a multi-state effort at acquiring voluntary data from mortgage servicers about how many modifications are really being made. In April, the Working Group’s second report found that seven out of ten seriously delinquent borrowers who should be on track for loss mitigation were not. By their third report in September, that situation had worsened to eight in ten not on track for loss mitigation as servicers cope with a deluge of delinquencies. It is clear that mortgage servicing companies are not providing solutions commensurate with the crisis we face, and that is costing not just families their homes but also investors who are taking bigger losses on foreclosure than they would be on reasonable modifications.

This historic settlement, which many and perhaps all states will eventually join, is just the first step. There are scores of other lenders whose predatory practices placed in peril our nation’s homeowners and the broader economy, and the Countrywide settlement should be considered a new minimum floor for settling additional multi-state efforts against other companies. Attorneys general should also pursue new legal strategies, including filing suit against mortgage servicers on behalf of state pension and other funds that invested in mortgage assets and are now seeing losses stemming from inadequate loss mitigation. Whatever comes next, American homeowners can be proud of our leading attorneys general. They have already accomplished more than this Congress and Administration, and have many more promising opportunities in front of them for modifying mortgages, preventing foreclosures, and attacking the financial crisis at its roots and ultimately benefit all Americans.

-ACORN Financial Justice Center National Director Austin King

This entry was posted on Tuesday, October 7th, 2008 at 3:00 pm and is filed under Uncategorized .