By Bernice Napach
Housing and Urban Development Secretary Shaun Donovan was one of several key negotiators of the historic $26 billion foreclosure settlement that a federal judge approved last Friday. Under the settlement reached between the five biggest mortgage lenders and the attorneys general of 49 states plus the District of Columbia, banks will pay $5 billion in fines to states and the federal government and commit $17 billion to modifying mortgages for delinquent borrowers and almost $4 billion to refinance loans for borrowers current on their payments.
Donovan told The Daily Ticker that the settlement will benefit close to two million families struggling to pay their mortgages, many at risk of losing their homes to foreclosure. Families will be helped by writedowns of principal averaging ""far larger than $20,000," said Donovan, and by refinancings. Homeowners who have already lost their homes to foreclosure will receive payments of $1,500-$2,000.
Donovan said the settlement will also help the broader housing market by "making it easier to get a loan and help move properties sitting vacant around the country." That will reduce the "shadow inventory" hanging over the market. But Donovan cautioned: "Nobody should say that the settlement alone will bring the market back. But when you combine it with the refinancing for underwater homeowners, a homeowners bill of rights that the president introduced a few weeks ago--all of those pieces can help create a broader recovery in the housing market."
Some have criticized the settlement as just another bailout for the banks but Donovan, who sat at the negotiating table, said banks were not happy about the agreement. They will be paying out $5 billion in cash and they own the majority of loans that will be written down under the settlement. Despite the settlement and the "best winter of home sales since the crisis began," Donnovan said much more work is needed to revive the housing market. To that end, he said the government has formed a joint federal/state task force on securitization. "We want to want to make sure given the uncertainty hanging over securitization market that we hold lenders and other institutions accountable, get help to homeowners but also.... create a strong single set of rules for securitization as well."