Reports as recent
as August 2012 indicate banks are still slow to extend principal
reductions to California homeowners after the $25 Billion Mortgage Settlement
was approved by the federal judge on April 5, 2012. Even though the
settlement provisions were effective immediately, the California Reinvestment Coalition (CRC) reported the banks have returned to “business
as usual” by forgoing principal reductions to instead push their short sale
efforts forward. Kamala Harris, California Attorney General, had secured
$12 billion in principal reductions to homeowners to be used by 2015, yet
recent reports from the CRC show a mere 2.7%, or $335 million, as being used
for such purposes. Studies by Keeping Current Matters [aka The KCM Crew]
echo these findings, with KCM portraying their research in the below pie chart
which shows how the National Mortgage Settlement funds have been spent.
As the chart above indicates, banks are certainly prioritizing their
short sale efforts in California in the wake of the Mortgage Settlement, with
an estimated 85% of the exercised settlement funds being used for such
purposes. As a realtor Los Angeles specializing in short sales, I’m a
little torn by these statistics. It’s encouraging to see the settlement
funds stimulate the short sale arena; after all, these transactions still hold
up as a less costly remedy than foreclosure. At the same time I would
also contend principal reductions would go a long way in revitalizing the
housing market statewide by opening up more opportunities for refinancing, as
well as eliminating more negative equity from the market equation. Kevin
Stein, associate director for CRC, contests “The California piece of the settlement emphasized
principal reduction because that is what is needed to stabilize families and
neighborhoods in California, and yet the banks’ initial performance shows that
meeting Californians’ needs is not their priority.”
Perhaps the participating
lenders / servicers in the Mortgage Settlement can take a page out of life’s
playbook and realize that balance is the key component to anything
healthy. Placing too much emphasis on short sales may prove to have less
corrective impact than if the funds were more evenly dispersed over all types
of assistance programs. For those underwater homeowners in California
interested in principal reduction, it is certainly possible that lenders will
begin extending this type of workout more so than in the prior months, since
the settlement months are still available for this specific use. But
until lenders begin exercising this workout program at a higher frequency,
principal reductions should not be the expectation.
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