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.

Most employers cannot check credit scores

By Jamey Dunn

Those who have been having trouble making ends meet and are looking for work in the down economy may have one obstacle cleared from their paths.

Gov. Pat Quinn signed a bill today that prevents employers from looking at credit histories when deciding whom to hire, promote or fire. The law makes exceptions for certain jobs and industries.

At a Chicago news conference, Quinn acknowledged that the recent economic collapse has caused many people to fall behind on their bills. “We cannot allow folks who are doing their level best to be discriminated against with respect to getting a job or keeping a job. And unfortunately, some employers are using the credit score of an individual person to decide whether someone gets hired or someone gets retained on a job or someone gets a promotion on that job. And I don’t think that’s fair.”

Oak Park Democratic Sen. Don Harmon, a sponsor of House Bill 4658, said that if employers use credit histories when making hiring choices, people who are down on their luck face a much tougher climb to get their finances back in order. “If you lose your job and your credit is damaged as a result, and if employers use your credit to prevent you from getting a job, this is a vicious cycle that folks will never get out of. … At the same time, it provides to employers that have a legitimate need to look at an applicants credit history the ability to do so.”

Karen Kent, executive vice president of the hospitality industry union UNITE HERE Local 1, said that credit history is not relevant to job performance for most jobs. “Bad credit is often the result of life circumstances not poor character. … We don’t believe that a bartender that has been through a divorce is less likely to serve a good cocktail or that a hotel housekeeper who has medical bills is less likely to present a clean room to the guests.”

Kent said the bill would especially help out minorities who have been disproportionately impacted by foreclosure, unemployment and predatory lending. Harmon said he hopes the bill would stop some employers from “using credit scores as a convenient way to discriminate against applicants.”

The bill exempts entire industries, such as banks and insurance providers, which Harmon said “traditionally and almost universally deal with people’s confidential financial information.” The bill also makes exemptions for specific positions that might require an applicant to handle cash or have access to credit information.

Mary Lynn Fayuomi, president and chief executive officer of The Management Association of Illinois, said the legislation would not change much. “For a lot of employers, there won’t be any major changes because they were only using credit reports for people who had access to cash or where financial decisions where being made. She said her organization only recommends credit checks in such cases, and those are exempted by the bill.

Lisa Callaway, vice president and general counsel for The Management Association of Illinois, said some employers that are not included in the exceptions may have run credit checks when they found a “red flag” in a potential employee’s resume, work history or interview. However, she said that practice was not the norm.

Laura Minzer, director of policy for the Illinois Chamber of Commerce, agrees. She said that businesses are not regularly pulling credit reports on potential employees who do not handle large amounts of money or sensitive information. Minzer said many states are considering similar laws during the recession, hoping to people find jobs, but she doubts the move will make much of a difference. “I don’t think that this law speaks to that. In all fairness, it is probably not going to get more jobs on the table.”

The law takes effect January 1.

Illinois targets mortgage lender

By Patrick O’Brien
Illinois is the first state to sue Countrywide Financial, the nation’s largest mortgage lender, for its role in the current foreclosure crisis.

The lawsuit, filed by Illinois Attorney General Lisa Madigan in Cook County today, alleges that the company used “deceptive practices” to lure borrowers into risky subprime loans with high interest rates. It also says the company “loosened the standards for selling its products,” ignoring whether prospective borrowers could repay the loan.

The suit says the company responded to signs that its mortgage business was unstable by making more risky loans and accelerating the practice of ignoring borrowers’ real financial situations.

The company’s practices were particularly harmful to Chicago and the surrounding counties, the suit says.

The Chicago area had the most subprime loans of any metropolitan area in the country, according to a 2006 study by the Chicago Reporter, an investigative magazine. And Countrywide held more of those loans than any other lender. The Chicago area also has one of the highest foreclosure rates in the country.

The attorney general also says her office has received more than 200 complaints about the company since 2005.

In early 2007, the company issued nearly $8 billion in risky subprime loans, which generally are given to borrowers with poorer credit histories and lower incomes than those given standard loans.

Countrywide’s promotional materials on its Web site tout the bank as a leading lender to those with “less than perfect credit.”

The company is currently the subject of lawsuits by former employees and customers, as well as a federal investigation.

Bank of America actually acquired the company in a $4 billion deal today, as approved by shareholders, and it has promised to tighten lending standards.

Countrywide did not return repeated phone calls.

State employee update
By Bethany Jaeger
The largest public employee union, the American Federation for State, County and Municipal Employees Council 31, is requesting a mediator to help bring closure to about 10 months of negotiations with Gov. Rod Blagojevich’s administration. The union represents about 35,000 state employees and held a massive rally in Springfield earlier this week, increasing attention that the union opposes a contract with the state if it were to increase the cost of employees’ health care and retirement benefits.

According to the union, the administration proposes a four-year contract that would do just that without a wage increase.

The existing AFSCME contract is set to expire June 30. The administration is not commenting on negotiations but confirmed AFSCME’s statement that the existing contract will remain active as a mediator steps into negotiations.

Anders Lindall, spokesman for the union, said the two sides first have to agree on the identity of the mediator, who would be an independent third party without a vested interest in either side. While mediators are common in other labor negotiations, Lindall said this is the first time in 10 contracts with the state that the union has had to request a mediator.