Recent Mortgage Deals Protect Banks, Cut Senior Aid

While everyone's been focused on the budget brouhaha, an important regulation change has slipped under the radar virtually unnoticed: a mortgage servicing agreement struck by the federal regulators and the big banks that's basically a sweetheart agreement to help the banks duck stiffer penalties from the states. At the same time, the federal budget cuts out counseling for senior citizens seeking reverse mortgages, and that could result in more lost equity, if not lost homes. Host Scott Simon gets more on the deals from our friend from the business world, Joe Nocera.

SCOTT SIMON, host:

And this week, federal regulators reached a tentative agreement with a group of major banks to reform how foreclosures are handled, how lenders deal with distressed borrowers and other mortgage servicing practices. Last year, banks suspended foreclosures after reports that their mortgage servicing arms were using questionable methods to force homeowners into foreclosure. There was a loud outcry for reform, but critics say the proposed agreement doesn't go far enough.

Joe Nocera, columnist for The New York Times, our friend from the business world, joins us from the studios of the Radio Foundation in New York.

Joe, thanks for being with us.

Mr. JOE NOCERA (Columnist, The New York Times): And its nice to be back, Scott.

SIMON: It is nice to be back. Its been a few weeks, hasnt it?

Mr. NOCERA: It certainly has.

SIMON: Well, weve missed you.

Mr. NOCERA: Lets not let that happen again.

SIMON: All right. Our pledge. What did the banks and regulators agree to?

Mr. NOCERA: Well, there's a whole series of efforts to basically reform the foreclosure process. So, in the old days, you know, you'd call a bank and you'd get a different person every single time and then lose the paperwork and so on. So one thing they have to do is have a single point of contact for a person who's mortgage is in trouble.

A second thing they have to do is they can no longer be on a dual track of mortgage modification and foreclosure. I mean often people would think they were going to get a mortgage mod, find out at the last second that it was being taken away and be foreclosed on the next day. They can't do that anymore. There's a whole series of things like that that the federal government, led by the Office of the Comptroller of The Currency, which is the primary national bank regulator, have put into - or will put into effect, assuming this happens.

SIMON: So what displeases some consumer groups and legislators?

Mr. NOCERA: Well, first of all, how are you going to enforce it? There's no enforcement mechanism whatsoever.

SIMON: Oh.

Mr. NOCERA: It's really the bank saying sorry, sorry government. We know we violated the law. We promise we won't do it again. And secondly, there's no financial penalty for having broken the law and repeatedly and egregiously. So I think...

SIMON: So disincentive if banks just want to violate this.

Mr. NOCERA: Exactly.

SIMON: Yeah.

(Soundbite of laughter)

Mr. NOCERA: Its, you know, some would say it's the OCC, the Comptroller of the country, back to its old tricks. You know, pre-crisis, they were fundamentally on the side of the banks against consumers whenever push came to shove. And to be perfectly blunt, Scott, this appears to be more of the same.

SIMON: So potentially good regulations but no teeth.

Mr. NOCERA: Right. Now, now, one of the things that's been going on is that in the states...

SIMON: Yeah.

Mr. NOCERA: ...the attorneys general are in the midst of their own investigation of the foreclosure crisis. And they, recently, a 27-page proposed settlement from them leaked into the press and it caused a huge furor. And one of the things they proposed was that the new foreclosure methodology be enforced by the new Consumer Protection Finance Bureau that is being set up by the president in the new Dodd-Frank law.

And the second thing they proposed is a $20 billion fine, which would be used to help reduce principle to get more mortgage modifications, which is something the banks have fiercely resisted.

SIMON: And so what does that mean for property owners?

Mr. NOCERA: Well, you know, Scott, as long as there are continued foreclosures in the country on a wide scale, you know, people who live in those neighborhoods will continue to see their properties decline. It is bad for everybody, not just the person being foreclosed on or the person who could get a mortgage modification and isn't getting one. It is bad for the country, for neighborhoods, for cities that foreclosures go on at this rate because it hurts property values, it hurts neighborhoods. It's just generally not a good thing. And so efforts to forestall foreclosures are a good thing.

SIMON: Now there's also some mortgage news in the federal budget deal. Housing and Urban Development loses $88 million for loan counseling. Now in the greater scheme of things obviously, when we take a look at the deficit, 88 million is, I want to say pin money. But why is it important nevertheless?

Mr. NOCERA: Well, in this particular case the money is being taken away from a program that gives counseling to senior citizens who want to do reverse mortgages. Reverse mortgages are a little bit complicated, Scott. They allow people over the age of 62 to in effect access their home equity, but instead a getting a lump sum and spending it all at once, they get it in bits and pieces. It's almost like an annuity they're getting from the bank.

SIMON: Yeah.

Mr. NOCERA: And then in effect, once they die or leave the home or sell the home, then the bank gets its money back. It's a really good innovative way to help people have a regular income late in life.

SIMON: Yeah.

Mr. NOCERA: But it also comes full of dangers, you know. Will your house remain at the price it was? You know, what happens if you run into trouble? It's fraught with danger and it is - and counseling is pretty important and it's also mandatory.

SIMON: Yeah.

Mr. NOCERA: And one other thing about the mandatory counseling now is that the people are going to have to pay for it themselves.

SIMON: All right. Well, thanks very much. Joe Nocera of The New York Times.

Mr. NOCERA: Thanks for having me, Scott.

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