More Relief for Consumers -- WSJ
December 24 2016 - 3:02AM
Dow Jones News
Penalties for two big European banks carve out a bigger portion
for loan modifications
By AnnaMaria Andriotis, Aruna Viswanatha and Gabriel T. Rubin
Billions of dollars of relief may be on the way for borrowers
who got mortgages before the housing bust.
Deutsche Bank and Credit Suisse agreed to pay consumers $4.1
billion and about $2.8 billion, respectively, as part of
settlements they struck with the federal government this week over
their handling of mortgage-backed securities before the housing
meltdown.
The two settlements, totaling $12.5 billion, are the latest
penalties in a long-running series between the Justice Department
and large banks over their role in deceptively selling billions of
dollars of subprime mortgages as safe securities, exacerbating
losses for investors nearly a decade ago. The settlements are
notable in part because consumer relief accounts for a greater
share of the total fines compared with many previous agreements and
consumer advocacy and other nonprofit groups aren't expected to get
a piece of the funds.
The relief funds will go toward loan modifications, similar to
the framework in the settlement reached between Goldman Sachs and
the Justice Department in April, according to people familiar with
the negotiations. Loan modifications in that agreement included
forgiveness of certain unpaid mortgage balances and forbearance to
struggling borrowers, including those who owed more on their
mortgage than their home is worth.
Payments to nonprofits and community groups -- a staple in many
of the U.S. government's early mortgage settlements and a sticking
point for many Republicans -- aren't expected to be included in
these settlements, according to the people.
Justice Department settlements over toxic mortgage securities
with Bank of America, J.P. Morgan Chase & Co., and Citigroup
Inc., among others, included provisions that require the banks to
turn over unpaid consumer relief funds to consumer advocacy
nonprofits that focus on affordable housing, legal aid help to
low-income borrowers and other groups. That provision was excluded
from the Justice Department's settlement announcement with Goldman
Sachs.
The exclusions could mark a turning point for how the
consumer-relief portion of mortgage settlements are structured.
The settlements could also be a hot spot for the incoming
administration. In September, the House voted almost entirely along
party lines to restrict payments to third-party groups as part of
Justice Department settlements, saying the arrangement subverts
Congress's spending power and gives money to left-leaning activist
groups with little oversight. The Obama administration threatened
to veto the bill, saying it "seeks to address a problem that does
not exist, " and the Senate didn't take it up. Republicans plan to
move forward with new legislation on the issue early next year, a
House Judiciary Committee aide said.
Consumer payouts have been a signature piece of most of the
crisis-era mortgage settlements. The terms of these deals and how
successful they have been at actually getting money to borrowers,
however, have come under fire from some consumer advocates and
Republicans.
Billions of dollars have been allocated to help borrowers in
Justice Department settlements over toxic mortgage securities.
Goldman Sachs agreed to pay out $1.8 billion to consumers earlier
this year, Bank of America agreed to $7 billion in 2014 and
Citigroup agreed to $2.5 billion the same year. J.P. Morgan agreed
to pay out $4 billion in 2013.
"Everybody is focused on the big number but where the money
actually lands and how it lands and if it is really hard money or
not is something very different," said Basil Petrou, managing
partner at Federal Financial Analytics. Both Deutsche Bank and
Credit Suisse are still ironing out the details of their
settlements with the U.S. government.
The relief from many mortgage settlements often ends up being a
bookkeeping item for the banks. One common tactic has been for the
banks to deduct the amount of unpaid balances for mortgages tied to
homes that went into foreclosure from the relief fund, said Geoff
Walsh, staff attorney at the National Consumer Law Center.
Loan modifications get doled out, though those rarely are
offered to the borrowers who need it the most, he said, but rather
focused on areas where property values have yet to stabilize. That
can help banks lessen the chances of borrowers walking away from
the house. "We've never seen rhyme or reason why [certain]
borrowers get chosen and others don't," he said.
President-elect Donald Trump hasn't weighed in on the issue of
how bank fines are doled out, though he has noted his antipathy for
bank settlements in the past. "What happened to the days when you
actually go to trial?" he said in a 2013 interview.
--Jenny Strasburg contributed to this article.
Write to AnnaMaria Andriotis at annamaria.andriotis@wsj.com,
Aruna Viswanatha at Aruna.Viswanatha@wsj.com and Gabriel T. Rubin
at gabriel.rubin@wsj.com
(END) Dow Jones Newswires
December 24, 2016 02:47 ET (07:47 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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