[1]Republican lawmakers are requesting more information from the U.S. Department of Justice [2] on settlements in the past year with Bank of America and Citigroup over the sales and packaging of mortgage-backed securities, according to a press release [3] from the U.S. House of Representatives Judiciary Committee.
In particular, the lawmakers are asking why the Justice Department is requiring the lenders to donate money to certain housing counseling agencies approved by the U.S. Department of Housing and Urban Development as part of their settlements. In August, Bank of America settled for a record $16.65 billion with the Justice Department, while Citigroup settled with the department for $7 billion a month earlier.
Bank of America was required to donate a minimum of $20 million to the agencies out of the $7 billion it was required to pay for consumer relief as part of its settlement, while Citigroup's minimum required donation to the agencies is $10 million out of the $2.5 billion it was required to pay for consumer relief.
Congressmen Bob Goodlatte (R-Virginia), the chairman of the Judiciary Committee, and Jeb Hensarling (R-Texas), chairman of the House Financial Services Committee, wrote a letter to U.S. Attorney General Eric Holder in late November questioning why money is being donated to these housing counseling agencies, which are intended to provide assistance to help homeowners avoid foreclosure but are called "activist groups" in the letter by Goodlatte and Hensarling, instead of toward consumer relief to those harmed by the lenders.
"We are a congressionally chartered organization," said Douglas Robinson, spokesman for NeighborWorks America [4], one of the groups mentioned in the letter as a possible donation recipient. "Congress created us in 1877 and Congress has been a principal funder of NeighborWorks since the beginning. What we do is we help consumers understand the cycle of homeownership, from purchasing, to post-purchasing, to what they do when they get into trouble. What we're about is helping consumers understand the process."
Robinson said that during any given year, NeighborWorks helps about 15,000 people buy homes, and also offers extensive resources in the area of foreclosure prevention as part of the goal to sustain homeownership.
Lisa Navarrete, a spokesperson from National Council of La Raza, another group named in the letter as a possible donation recipient, said the letter was strictly "hypothetical." La Raza, the nation's largest provider of housing counseling to Latino communities, is on a list of 27 HUD-certified intermediaries that are possible donation recipients from the settlements - but it hasn't been decided who is going to get the money yet, she said.
"We haven't been chosen for anything," Navarrete said. "We were not named in the settlement and we have not received any funding. The $10 million out of the $2.5 billion settlement is supposed to go to housing counseling, but it can go to any of those 27 groups."
Representatives from the Department of Justice were not immediately available for comment.
"Relief for these consumers is long overdue, yet the Justice Department’s record settlements have left homeowners disappointed," the lawmakers wrote in the letter to Holder. "It seems that the alleged victims are not the primary beneficiaries of these multi-billion dollar settlements. Instead, the terms in the Justice Department’s two latest settlements look less like consumer relief and more like a scheme to funnel money to politically favored special interest groups."
In the letter, Goodlatte and Hensarling note that the lenders receive two dollars worth of credit toward their consumer relief commitment for every dollar donated to the agencies above the minimum required donation, but the credit is only dollar-for-dollar for forms of direct consumer relief such as loan principal forgiveness or loan modifications.
"This makes donations to activist groups far more attractive to banks than providing direct relief to injured consumers," the congressmen wrote in the letter. "As a result, the settlements appear to serve as a vehicle for funding activist groups rather than as a means of securing relief for consumers actually harmed."
The congressmen asked the Justice Department to conduct a briefing for the Judiciary and Financial Services Committee regarding the concerns expressed in the letter. The lawmakers asked the Justice Department to provide answers by December 9 to a series of questions regarding who arranged the terms of the settlements, if non-profits that stood to gain were involved in the decision, if White House officials were involved, and if Citigroup and Bank of America received any informal guidance from Justice Department or White House Officials as to which groups should receive donations from the settlements.