Illinois to get $1 billion in foreclosure settlement

By Jamey Dunn

Under a national settlement reached by states and five of the nation’s largest banks, Illinois would get $1 billion in relief for borrowers whose homes are in danger of foreclosure.

The $26 billion settlement announced today came in response to the nation’s largest lenders engaging in sloppy and sometimes fraudulent foreclosure practices, such as signing off on documents without verifying information, a practice known as robo-signing. Sketchy and sometimes nonexistent paperwork led to errors, miscommunication and cases of mistaken identity. It created a bureaucratic nightmare for those trying to work with banks to find a way to stay in their homes. (For more on robo-signing and the issues that led up to today’s settlement, see Illinois Issues March 2011.)

“Many companies that handled these foreclosures didn’t give people a fighting chance to hold onto their homes,” President Barack Obama said at a Washington, D.C., news conference today. “In many cases, they didn’t even verify that these foreclosures were actually legit. Some of the people they hired to process foreclosures used fake signatures on fake documents to speed up the foreclosure process. Some of them didn’t read what they were signing at all.”

The settlement was reached between federal regulators, many of the states' attorneys general and Bank of America, JPMorgan Chase, Wells Fargo, Citibank and Ally Bank, formerly GMAC. Illinois Attorney General Lisa Madigan was a key player in the negotiations. “After many months of investigation and negotiation, I’ve concluded that this settlement accomplishes two major goals: It provides timely help for struggling homeowners, and it establishes new rules for mortgage servicing that will protect homeowners in the future,” Madigan said in a prepared statement.

Most of the money will go toward efforts to keep borrowers in their homes. Those who cannot make their payments may be eligible to refinance their homes at better interest rates than their original loans. Homeowners whose houses are “under water,” which means a home is worth less than what the homeowner owes on it, could be eligible to have the amount they owe reduced. Borrowers who lost their homes between 2008 and last year could be eligible for up to $2,000 if they were victims of shoddy foreclosure practices. According to the Chicago-based Woodstock Institute, 400,000 homes are under water in the Chicago area alone, and about 800,000 are in danger of becoming under water if the housing market takes another downward turn. The average Chicago-area homeowner in an under-water house owes about $61,000 more than the home is worth. Banks have three years to dole out benefits from the settlement and face further penalties if they do not.

The deal also sets out new rules for banks and mortgage servicers. They will be required to consider making a deal known as a loan modification with borrowers in danger of losing their homes instead of dismissing such requests outright. Borrowers will be able to appeal if a bank refuses to work with them. While a bank is considering a modification, it cannot foreclose on a home. Previously, homeowners faced such conflicting signals as having a bank agree to a modification, only to turn around and foreclose shortly after. “It’s been a very real concern for borrowers and for housing volunteers, and there’s been a lot of frustration with this [practice],” said Tom Feltner, vice president of the Woodstock Institute. Feltner said that while the settlement will not make all of those touched by the banks negligent practices whole, it is a positive step toward changing the system. Previous efforts, including a federal program to get banks to modify loans, have come up short, but Feltner said the settlement would require banks to “build loan modifications into their business practices.”

Dawn Dannenbring, an organizer for the Bloomington-based community advocacy group Illinois People’s Action, said that although the settlement comes with what seems like a large price tag, it does not make a dent in all the damage caused by the banks. “The $25 billion is just a drop in the bucket.” Some important details of the plan remain unclear, she said. “Who decides who gets the money?”  Dannenbring said her group opposes allowing the banks to make such choices. “The banks have already had the opportunity to do right,” she said. One bright spot of the settlement, she said, is that it does not grant banks immunity from investigation and litigation going forward, something that was discussed during negotiations. “We think that is the best part of this settlement deal.”

Obama has created a special task force to investigate the issues surrounding the housing crisis. “We’re going to keep at it until we hold those who broke the law fully accountable,” he said. He emphasized that today’s settlement does not close the book on the housing market collapse. “No compensation, no amount of money, no measure of justice is enough to make it right for a family who has had their piece of the American dream wrongly taken from them. And no action, no matter how meaningful, is going to by itself entirely heal the housing market, but this settlement is a start.”

Madigan echoed his statement. “While the settlement is a big step forward in our efforts, it is not the end. In Illinois, we will continue to take strong legal action against lenders, banks, servicers and others who contributed to the housing and economic collapse,” she said.

Feltner said that Illinoisans who think they might qualify for help through the settlement should talk to a counselor who is certified by the U.S. Department of Housing and Urban Development. “The best advice is free advice. You don’t need to go to an agency offering to help with your foreclosure issues for a fee.” Madigan urged those who have questions or are interested in seeking relief from the settlement to call a toll-free hotline: (866) 544-7151; visit her website,  www.illinoisattorneygeneral.gov/consumers/bankforeclosuresettlement.html, or the federal site,  www.nationalforeclosuresettlement.com.