CRC: Banks Need to Step Up Principal Reduction Efforts

While the ""Office of Mortgage Settlement Oversight"":https://www.mortgageoversight.com/ may be satisfied with ""banks' progress"":http://dsnews.comarticles/servicers-work-toward-fulfilling-national-settlement-requirements-2012-08-29 addressing problems in the foreclosure process, not all organizations share that view.

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The ""California Reinvestment Coalition"":http://www.calreinvest.org/ (CRC) issued a release Thursday criticizing the banks on going back to ""business as usual"" by forgoing principal reduction efforts and prioritizing short sales, a plan most banks were using before the settlement was announced.

While California attorney general ""Kamala Harris"":http://oag.ca.gov/ managed to negotiate a plan that includes $12 billion in principal reduction for homeowners in the state, CRC said banks have been reluctant to uphold that responsibility.

""Specifically, only 2,334 California borrowers have received principal reduction (or ""first lien modification forgiveness""). This represents $335 million, or just 2.7 percent of the $12 billion in principal reduction that Californians were promised in the settlement and desperately need,"" the release said.

According to the settlement, banks are required to get the total $12 billion in principal reduction to Californians by 2015, with much of the money going out in the first year. CRC said underwater homeowners in the state should be ""concerned"" if the banks' progress in the first three months is any indication of their efforts.

While they've been slow in implementing principal reduction programs, banks in the state have been busy handling short sales, with 85 percent of the relief distributed in the California so far coming from short sales.

Kevin Stein, associate director for CRC, said the banks' apparent lack of interest in pursuing principal reduction programs demonstrates a difference in priorities between Californians and banks.

""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,"" Stein said.

In addition, the organization expressed concern over what it called a lack of transparency regarding who the relief is going to. The Office of Mortgage Settlement Oversight does not currently collect demographic information about borrowers and neighborhoods getting relief, information that CRC said is necessary to see if banks are engaging in unfair practices.

The organization urged settlement monitor Joseph Smith to require such demographic information from banks, citing a history of unfair lending practices.

""The discriminatory and unfair practices exhibited by the banks over the years have left Californians no reason to trust that they are getting this relief to all of the people who qualify for assistance and that need it the most,"" CRC said.