California Reinvestment Coalition

New Survey of Housing Counselors Points to Banks Failures in Compliance with Foreclosure Prevention

Published April 12, 2012 17:30

April 12, 2012--  A new survey of housing counselors (PDF) in California reveals the failure of banks to comply with policies and programs that would help homeowners avoid foreclosure. When the $26 billion Attorneys General settlement was being ironed out in February, the California Reinvestment Coalition (CRC) surveyed over 70 housing counselors on banks performance on foreclosure prevention efforts in California. As banks were making more promises to policymakers and consumers, counselors overwhelmingly reported the lack of accountability for bank’s failures. The survey highlights the need for strong enforcement of the settlement and permanent consumer protection legislation in California that protects Californians from irresponsible foreclosure prevention practices like “dual track” (AB 1602/SB 1470).

Conducted in January and February 2012, CRC’s survey collected responses from more than 70 counselors representing 50 nonprofit housing counseling agencies across California that collectively serve thousands of borrowers a month. This is CRC’s eighth survey since 2007.

Finding #1: 100% of surveyed counselors reported that dual track was a serious and common problem that was devastating families. This has led to horrible outcomes for homeowners, as 86% of counselors reported that clients “often” or “sometimes” have their home sold while their bank is considering their loan modification application. In their desperation, homeowners become easy targets for scams or are pressured into a short sale or bankruptcy to postpone the sale date.78% of counselors reported that homes were “often” or “sometimes” sold in violation of HAMP rules and 70% were “often” or “sometimes” sold in violation of GSE rules.

Finding #2: Principal reduction loan modifications are needed, financially feasible, but still rare. 84% of counselors indicated that the Big 4 Servicers “always” or “almost always” fail to reduce principal when granting modifications. Counselors reported that banks were much more likely to reduce principal on loans that they owned, rather than those that they serviced. This stark contrast indicates that banks are not operating in the best interest of investors.

Finding #3: Fifty-eight percent of counselors thought that borrowers of color “often” or “sometimes” experienced worse outcomes, up from 44% last year.

Finding #4: The federal Independent Foreclosure Review process represents a poor federal response to abusive foreclosure practices. 65% of counselors reported that homeowners did not know what the notice was, 53% reported that homeowners thought it was a scam, and 43% reported that homeowners either did not know what they stood to gain or did not know how to fill out the form.

Finding #5: The need for nonprofit housing counselors has never been greater, yet their capacity is shrinking. Seventy-five percent of housing counselors report that they expect demand for their services to increase in the coming year, but 37% of their offices need to cut back their services.

Finding #6: Servicers failed to meet almost all of the key metrics that they have promised to fix over the last few years—these include preventing delays, keeping paperwork in order, and more. In addition, HAMP continues to fail homeowners as denials and being stuck in trial modifications continue to be identified as the most likely outcomes for HAMP applicants.

The report outlines a number of important policy recommendations that would ensure that banks are complying with the California commitment under the Attorney General settlement and identify servicing standards that the Consumer Financial Protection Bureau could implement. However, more needs to be done. The AG agreement only covers five institutions and runs for three years.

Next week, the California State Assembly and Senate committees on banking will vote on the Foreclosure Reduction Act of 2012 (AB 1602/SB 1470) which would outlaw dual track, and give homeowners the right to sue banks for failing to comply with the legislation. It’s time for the California State Legislature to pass this law, and the other strong bills in the “Homeowner Bill of Rights” package being championed by Attorney General Kamala Harris.

To read the full report, click here (PDF). The report was written by Kevin Stein of the California Reinvestment Coalition and Sarah Brett. For more information, contact Kristina Bedrossian at 415-864-3980 and kbedrossian@calreinvest.org.

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The California Reinvestment Coalition advocates for the right of low-income communities and communities of color to have fair and equal access to banking and other financial services. CRC has a membership of 300 nonprofit organizations and public agencies across the State.

   www.calreinvest.org

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CRC has a membership of over 300 nonprofit organizations and public agencies across the State.