Journalism in the Public Interest

Why Millions Won’t Get Help From Big Mortgage Settlement

Freddie Mac and Fannie Mae’s opposition to principal reductions on mortgages means about half of homeowners in the U.S. couldn’t qualify for the most significant help from banks’ settlement today with states.

Abandoned houses at the Desert Mesa subdivision are pictured in North Las Vegas on Nov. 13, 2011.(Jewel Samad/AFP/Getty Images)

The Obama administration is billing today's $25 billion agreement between most states and five banks that engaged in flawed or deceptive practices as a big win for struggling homeowners.

Most of the money in the settlement isn't a penalty, or a fine levied on the banks. Instead, the biggest slice of the settlement will be money banks put toward principal reduction -- reducing the amount owed by struggling or underwater borrowers. (Banks will also put smaller amounts toward refinancing and other ways of helping people get back in control of spiraling debt.)

Getting a break on their mortgages could help the millions of homeowners who owe more on their home than it is worth. But many of them won't qualify -- thanks to government-owned Fannie Mae and Freddie Mac.

The two mortgage companies, who were bailed out by the government in 2008, were described by former Obama economic advisor Jared Bernstein as "the boulder" in the way of principal reduction. Their federal regulator, the Federal Housing Finance Agency, is tasked with maximizing profits from the companies -- and thus minimizing taxpayer losses. The head of the agency, Edward DeMarco, argues that allowing principal reductions would result in a big loss for Fannie and Freddie and ultimately taxpayers.

The two companies aren't directly part of the settlement. They don't service mortgages, or deal directly with borrowers. But Fannie and Freddie do guarantee or own roughly half of the mortgages in the U.S. They also hold more than 3 million of the nation's nearly 11 million underwater mortgages. Since Fannie and Freddie are backing the loans -- and are the ones who will take a loss if the mortgage isn't paid back in full -- they often have a veto on whether homeowners get a break.

Even if Bank of America, for example, services your mortgage, you would not be eligible for principal reduction if Freddie or Fannie back it.

Principal reduction is being pushed heavily by the Obama administration as a way to lower the rate of foreclosures. The administration recently tried to encourage Fannie and Freddie by offering to triple incentives for principal reduction. So far, the companies and their federal overseer, DeMarco, have declined to do so. An FHFA spokesperson said that the agency is "not a party to the agreement. We await a copy of the agreement to determine its implications."

Lowering the amount of money owed on a loan would result in at least short-term losses for Fannie and Freddie, as well as to any other investors in mortgages that are reduced. But many economists and analysts argue that Fannie and Freddie would ultimately benefit since such moves could help restore the health of the housing market as a whole.

The reluctance by Fannie, Freddie and others to take on principal reduction is partly why the administration's mortgage modification programs have been so ineffective.

The settlement does have potential benefits for future borrowers, including new protections and disclosures to prevent what Attorney General Eric Holder called "abusive practices" by the mortgage industry.

A small portion of the overall settlement -- about $5 billion -- will amount to penalties for past abuses by the banks. Some of it will go to state governments that were afflicted by banks' shoddy practices, and some of it will go directly to about 750,000 homeowners who were foreclosed upon. If you lost your home, you could get up to $2,000.

Thank you for coming out with a story and headline that actually reflects what this settlement will mean. Nearly every other source is touting this as a Godsend. I guess they’ve been reduced to summarizing press releases in lieu of reporting. Three years now trying to modify a mortgage and still waiting. We’ll see what happens. I’m not going to hold my breath.

This is a major sellout to the big banks and all the lipstick in the world won’t make it attractive to all the people who continue to be abused by such systemic corruption.

Hey Freddie!  I own a Caterpillar D7F Bulldozer. Wanna Talk.

Families lose thier homes to wrongful foreclosure…and are paid $2,000 for their losses? How fair is that?

Chris M.  There is help in modifying if you want it.  I am happy to help.  Things always look prettier when reported even though reality is the opposite.  It is a start, but your comment is right on.

free markets are not free. they are purchased. we need a new economy based on people getting fair deals. the government is suppose to represent our general interests and well-being, but the money the big banks, big oil, big health insurance, have stolen from the people to buy our government will just keep this economic hog wallowing until it suffocates under its own greed and we are a nation no more.

Charles Deihl

Feb. 9, 2012, 6:34 p.m.

So if I rob a Bank for $200,000,I should only have to pay back between $1,500-$2,000 & have no Jail Term ?

Once again, i’m glad I rent. Maybe if more people rent property and apartment building construction goes up, the government will take REAL notice of how the housing market really is a bad deal.

Walter D. Shutter, Jr.

Feb. 9, 2012, 7:50 p.m.

So the Fannie Mae and Freddie Mac mortgage principals will not be written down but the principals of mortgages held by the evil banks will be reduced as the major component of this settlement. Serves them right,you say?
Think about it:  The net effect will be that private mortgage lenders(evil banks) will be more reluctant to lend knowing that their total return on their investment could easily be degraded by government action, as it so obviously was in this case.

Referring to potential losses by “Fannie and Freddie” is totally misleading, both entities are wholly owned by, we the tax payers because the “government” through our supposed “representatives” not only bailed them out but put us on line for all FUTURE loses. 
DeMarco is the ONLY one looking out for the people who have to pay the bill.

The settlement means NOTHING. The CRIMES of the banks and servicers are STILL being committed…and people are still being kicked out of their homes ILLEGALLY.

The truth:

Homeowner: “My income has gone way down because of the devastating economic crash—can I please apply for the loan mod program that our wonderful President told us about on national TV?”

Servicer: “I’d like to help you with that, but you can’t be current on your “mortgage”—because then we don’t accept that you are really struggling…”

Homeowner: “Okay, well, I’ve been taking money from my credit card just to survive, but I will stop doing that—which I hate doing anyway—and just fall behind so I can qualify for the mod program…while I continue to look for work…my credit is shot anyway, so what the hell…”

(later) Servicer: “Okay, send us allyour paperwork fifty times over the course of the next year—during which time we might foreclose on you anyway, just for the heck of it—but if you happen to survive the torture of the paperwork nightmare, then we may or may not give you a “trial payment plan”—and if we do, you will be giving us money every month (on time, please—only WE are allowed to screw up the paperwork), to put into a “suspense account”, which we will of course keep, no matter if you get a “permanent” loan mod or not….anyway, after 3 to 6 months, we will tell you (the total lie) whether or not some “investor” who “owns” your “loan” in some “trust”, actually “approves” of you getting a loan mod…or someother stupid reason to not give you the mod….We of course are blatantly lying when we say some obscure “investor” has the final say so, but we have to come up with SOME sort of excuse, because what we REALLY want to do is foreclose on you—for a variety of reasons, but it always comes down to us making the most money we possibly can. You see, we are just a debt collector…nobody “owns” a promissory note—they were all destroyed because of the “securities” issue…we just PRETEND like a “loan” was supposedly pooled into a mortgage-backed securitized trust—but, honestly, this isn’t true. The pretend “loans” NEVER went into any of the trusts. It was just a little game we played, and are still playing…There weren’t any “loans”. Only collection rights were transferred at closing. So, ma’am, here’s the thing—you can give us your money for the stupid “trial payment plan”, but we more than likely won’t ever give you a mod…we will just string you along with lies, take your money, hide the truth, and then foreclose on you—and there’s nothing you can do about it. We have it all figured out…how to get it done quickly, and kick you out…see, there’s this thing called MERS, and it allows us to make up any kind of lie we want…and get away with it…it’s quite the INGENIOUS TRAP we put you in, isn’t it?”

Homeowner: “Uh, yeah…hmmm…well, since you put it that way, I guess I’ll just have to look for a sale on tents somewhere…just not sure what I’m going to tell my kids…”

Servicer: “NOW you’re talkin’—good luck with that! Just tell your kids that money and deceit are SO much more important than compassion and honesty—that’s what our wonderful government wants us to learn from all this…Oh, and for safety’s sake, just be careful not to use any little wood stoves inside that tent, even if you think you are about to freeze to death…”

from livinglies(dot)wordpress(dot)com

Does anyone care to put a dollar value on the ‘pain and suffering’ we went thru (or still going thru) dealing with all these crooks?  I’m in my fourth year (yes, I said fourth year) of trying to get a loan mod from B of A.  When I see the results of the so-called ‘Independent Foreclosure Review’ that I filled out, I hope I have a good lawyer willing to take my case.

Someone lives for free in a home (which they couldn’t afford to begin with) for years without making a payment, yet are somehow harmed because the mortgage company mailed a letter a day late or missed a signature on one of 10,000 documents needed to foreclose.  Now people who didn’t lie to get a loan or actually put money down on their homes get to pay higher bank fees and taxes to keep deadbeats in their mansions.  Heaven forbid people are held accountable to their own actions!  Evil banks must be punished!

The problem is essentially legalized corruption.  If big money buys politicians, they write laws that make no long term sense for the country but make money for the financier.  It is a system that will quickly lead us down the drain if not changed.  See my website…

I don’t see the point in loan mods. I’m sorry you decided to sign a crappy contract and way over extended yourself, but way should the other party have to settle for less because you made a poor decision or fell on hard times. No one forced you to take these contracts.


A lot of people were carefully maneuvered into these contracts by carefully trained sharks working for unscrupulous banks and mortgage lenders. They were lied to.

We skim mortgage contracts, we read the summary and trust the person we’re dealing with, no one has ever read a mortgage contract without suffering catatonia.

BTW, you need to change your screen name…it’s misleading.


Feb. 9, 2012, 10:38 p.m.

To Christian and Joe, if 30% of the people fit the profile you describe, that still leaves 70% who didn’t.  A Chase Bank executive has admitted that Chase Bank gave out commissions seven times larger for every balloon loan they could get signed, even if the person applying qualified for a more stable loan.

I laughed when I read about this ‘settlement’ this morning.  $25 billion is a drop in the bucket to the profits of these banks.  The CEOs and Boards of these banks will be laughing their heads off even after they write a check.  Truth be known, they will probably pay the money with money they received in the bailout.
Haven’t read all the details yet, but does the agreement require them to end the practices that got them introuble in the first place? And when will the Republicans complain about this or take credit for it.?

From my morning email:

The Top Twelve Reasons Why You Should Hate the Mortgage Settlement

In case anyone needs more reasons.

I’m surprised anybody expected different from the settlement.  A full trial, maybe you’d see results, but never a settlement.

When it comes to something as big as a major bank, the government is never going to muster enough aggression (against the Party’s biggest donors, remember) to demand more than “the price of doing business.”

As to Christian’s question, I also rent, and here’s the way I look at it:

- No, the homeowner doesn’t deserve much for his trouble just for a bad investment, and no homeowner deserves a retroactive better price.

- Homeowners do deserve compensation out of the banks’ hide for being defrauded in cases where this can be shown.  In cases where the bank didn’t keep the promissary note, they shouldn’t have any right to the house, certainly.

- For all of us, including renters, it’s best to minimize foreclosures and evictions, which bring down property values.  You don’t want to find out what happens once a third or so of the houses go vacant.  Not to the neighborhood itself, not to your landlord’s taxes, which affect your rent.

If it weren’t for that last problem, especially, I’d say that the homeowner deserves nothing.  Let the market collapse so that young and poorer people can move in and stabilize suburban communities, rather than maintaining the jungle of archaic zoning laws and yuppie focus that demand a twenty-minute drive and a hike through five coffee shops to buy some groceries…

Alessandro Machi

Feb. 10, 2012, 10:26 a.m.

John, I don’t think it’s wise to make this a class warfare issue. I can use the reverse argument that it was trying to make homes affordable for the poor that led to this calamity?

So you could argue against the “yuppies”, I could argue against balloon mortgages that artificially inflated prices for everybody so that those will less money could get into the home market.

What’s the point? It’s that type of class warfare that the banks rely on so they can go on their way doing unethical things.

The bottom line fact for me is this, there should be NO investments in home mortgages because they are NOT investments. The government and the fed should be the ONLY ONES backing home mortgages. The real investors are the people that take private funds and used to purchase land and put up a building, and then either sell or rent that building.

Once the building is built, it CANNOT BE INVESTED IN. It becomes a RE-INVESTMENT. Banks and wall street get away using words like investment that they have no right to use.

Credit card companies call their credit cards contracts when the two parties never met in the same room nor was there a third party witness.

it’s all bank and wallstreet bullshit. So lets stop class warfare and focus on the false terminology that wall street and banks use to create fraudulent investment schemes.

What did the government do with all the money they should have INVESTED in home mortgages over the past 10 years?  The government spent it on WAR.

We are complicit in allowing our own government to hand over home mortgage “reinvesting” to wall street and corrupt bankers who gave out bonuses that were SEVEN TIMES LARGER for balloon mortgages than a flat rate mortgage.

We are complicit allowing our government from getting away from doing the boring thing like home mortgages, so they could do the exciting thing and manufacture weapons of mass desctruction to kill people in other lands.

We are complicit in allowing our state governments to create HUGE pension funds that were invested offshore so that local businesses that actually paid into those funds with their taxes, would LOSE THEIR BUSINESSES as the offshore pension funds came home to roost in CHEAPER COST AND QUALITY products.

Alessandro Machi is spot on right. However owning real property is a prerequisite for having legal stature in most stable societies, and if there’s an increase in value all the better.
Unfortunately all the required paperwork is missing, was meant to disappear, there’s no paper trail and that’s why the housing debacle cannot be resolved.The bubble was structured so no one could be accountable.
No one should sign anything that has economic consequences without the intention of squeezing the balls of the other party- or just walk away from the table.

the govt of the people
forced banks to lend to people who couldn’t afford it.
banks bundled the loans to try to recoup their loses.
govt now shacks down banks for enforcing govt rules
many in the public cheer…and think they’ll get something from it, not realizing they’ll get higher fees.
responsible people now have to pay yet again

media is still in the dark.

its a sad day

the article implies that someone falsly created a document to extract money that they were otherwise not entitled to.That is not what happened here.The banks used robosigning instead of real signatures to complete foreclosure documents against borrowerers who had not paid their mortgages.In other words no one got anything they were not entitled to.I wonder how the author would react if his uncle left him a million dollars but then found out the will was void because his uncle had used a robosigner…….

“But many economists and analysts argue that Fannie and Freddie would ultimately benefit since such moves could help restore the health of the housing market as a whole.”

Taking advice from the same people who missed the housing bubble is bad advice.  Just sayin

Alessandro, I apologize for not having been clear in my point.

What I meant was that the modern suburb is badly designed for the people who live there.  It’s designed for “young, urban professionals,” who want a watered-down downtown with a coffee shop on every corner, but far enough away from housing that poor people don’t “ruin” it.

But young people have been brainwashed for the last decade or so to view suburbs as where you go to let your dreams die, leading to the “brain drain” of college-educated kids abandoning their home towns.

Many of those that remain are living in housing they can’t afford, pushed there by banks and people telling them about what a great investment real estate always is, bought at the bubble’s maximum.

If we foreclose on them (because they can’t pay), the market will tank.  When the market tanks, the young and the poor will leave the city and return to the suburbs and rebuild communities.  Rebuilt communities won’t have the same mix of businesses, but the more dispersed population will support more and stronger businesses than yet another Starbucks, McDonald’s, and sporting goods chain.

(Poorer people are generally also happier with looser zoning for small businesses, since they don’t want to drive to a big commercial hub.  I do see that as an overall benefit for the right businesses—like a small restaurant or grocery—and its connection to “poor people” is mostly coincidental.)

I don’t mean that a particular class of people is harmful or unsavory, by any means.  In fact, I’m no longer “young,” per se, but the yuppies are my peers and friends, so I’m not down on them.

I mean that there’s a clear long-term benefit to the overwhelming majority of the country to letting the people in bad mortgages take their losses, whoever they happen to be.  It would allow us to rebuild communities, rather than trying to guard and shore up the failing status quo.  Rather than “restore the health” (by which they mean the over-inflated median price) of the housing market, we should be rebuilding the market from zero, without the bubble pricing and, hey, maybe without the entire legacy of racial and economic segregation.

EXCEPT that this introduces a security problem of unsupervised, abandoned housing and an unstable tax burden on the people who own houses they otherwise can afford.  I don’t think what’s left of our communities can withstand that kind of attack.

Once again the people that do the right thing get screwed. People that overextended themselves on houses they should have been in in the first place now are going to get “free money” to try to help them out. These people complain that Oh it’s the lender’s fault, they told me I could afford it. There should have been some common sense used. If I am making 50K and they tell me I can afford a 400K house and you work out the numbers and it’s like 40-50% of your paycheck, something should go off in your head that there is a problem.
This situation is no different than people that can’t control their spending with credit cards and want to declare bankruptcy “to make it go away”. These people need to learn some fiscal responsibility (just like our government which is a whole other subject). The fiscal responsibility issue with this country has been a problem for years and we are now prisoners to China and India which hold most of our debt.

David P. Summers

Feb. 10, 2012, 2:26 p.m.

Lets be clear about what being “underwater” means.  All being “underwater” means is that you, at least at the moment, haven’t made profit on the value of your home.  It doesn’t mean the payment you were making has gotten larger.  If you can’t afford your payment, it is much more likely to be because you lost income.  People who have lost their jobs could need help, but someone can loose their job and not be able to make payments without ever being “underwater”. 

The focus on being “underwater” ends up being a focus on those who didn’t make a profit.  But of course a lot of this money will come from those, directly or indirectly, who didn’t jump in on the housing bubble.  In other words, the people who acted responsibly.

Robosigners were used because the necessary settlement, as well as foreclosure documents do not exist. If an attorney does the signing, without exaiming the documents and is found out, there goes their practise, ergo the need for dumb asses to commit robosigning fraud at foreclosure time, of which the originators of the loan knew was going to happen anyway.
And no one is accountable.

Conscience of a Conservative

Feb. 10, 2012, 7:17 p.m.

This settlement is a bad deal. The banks effectively pay for their mis-deeds using investor money.  It’s like getting caught stealing and getting to pay the fine with other stolen funds.

Cora,  Thanks for this article. I deliberately did not read any news on this event until ProPublica generated some real news.

Does this new deal go back as far as 2007 -2008 or is it only for people who have stayed in their foreclosed houses for the past 4years ?

clarence swinney

Feb. 13, 2012, 11:48 a.m.

How can a Big Bank foreclose on a Mortgage that is held by an investor in Singapore?

Allen M. Abrahams

Feb. 13, 2012, 2:25 p.m.

Same song and dance for Student Loan holders….
Obama announced “income sensitive repayment of no more than 10% of your income”  Salle Mae will not honor that and will only do 10% off your current payment schedule. Meanwhile, because of a permanent disability I qualify for Medicare and SSD, but I can not consolidate my loans a second time and have used all my deferments. So into forbearance status I have been with more than $30,000 in interest, just $10,000 short of my original $40,000 loans.
No, I did not loose my home, but I am not hire-able, as employers have pulled my credit report and told me that I am a risk to hire because of it.
When will there be a story about the Student Loan scam?

Ok I’m confused.  Fannie and Freddie refuse to reduce principle on mortgages they guarantee because they claim it will result in a loss to the tax payer..

Why would it result in a loss to the tax payer if you now have a $25 billion trust from which to draw from..?

See My blog on the topic.  your share is appreciated.

$25B Mortgage Settlement: After Fine Print, Is Help Any Real?

People behind the mortgage payments is mostly due to lose one income in the family, and if the house market is stable compared to the market in 2003-2005, they can resale the property and scale down the expanses to match their income, but they can’t sale the property at the price matching the debt. The property has to be priced at the comparable market price to be sold, or the principle of the loan has to be reduces to match with the market value so the owners who apply for the modification plan migh have enough income to pay for the mortgage to stay in the house. Someone have to lose financially to stable the market. The lenders is the one have to be the losers but at least they’re still compensated by the bail-out program and the PMI to stable the market.  All the short sales should be timely approved and sold when there is a reasonable offer to the homes. There should be a system in place with the dedicated lenders’ employees to resolve the short sales.

This article is part of an ongoing investigation:
Foreclosure Crisis

Foreclosure Crisis: Banks and Government Fail Homeowners

Banks and the government have fallen short in helping homeowners in danger of foreclosure.

The Story So Far

Systemic failures at the country’s banks and mortgage servicers have exacerbated the most severe foreclosure crisis since the Great Depression, and government efforts to limit the damage have fallen short. ProPublica created an unrivaled database of homeowners who have faced foreclosure, opened a Facebook page to encourage homeowners to share their stories, wrote profiles of some of them, and incorporated their experiences into our reporting. We also provided a comprehensive rundown of the numbers behind the crisis.

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