Secretary Donovan Talks Multi-Billion Deal
MICHEL MARTIN, HOST:
I'm Michel Martin, and this is TELL ME MORE, from NPR News.
Coming up, the Vatican announced recently that a woman from the Mohawk Algonquin tribe will be canonized as a Catholic Saint. The first Native American to be so recognized. Now, many Native Americans say this acknowledgement is long overdue, but others are troubled by the role the Catholic Church in general and this woman in particular played in converting native people to Christianity. We'll have more on that story in just a few minutes.
But first, we have a newsmaker interview with Housing and Urban Development Secretary Shaun Donovan. President Obama announced a $25 -billion settlement with the nation's largest mortgage lenders yesterday. The settlement is an effort to bring some relief to this country's struggling homeowners and hold five of the country's largest banks accountable for their role in the foreclosure crisis.
And Secretary Donovan is here with us now to tell us more about this settlement and what it's all about. Welcome back, Mr. Secretary. We appreciate this opportunity to speak with you once again.
SECRETARY SHAUN DONOVAN: Great to be with you, Michel.
MARTIN: Now, needless to say the president is happy about this. And as a sign of its importance, he personally came out to talk about it. And I just want to play a short clip of what he said about this yesterday.
(SOUNDBITE OF SPEECH)
PRESIDENT BARACK OBAMA: These banks will put billions of dollars towards relief for families across the nation. They'll provide refinancing for borrowers that are stuck in high interest rate mortgages. They'll reduce loans for families who owe more on their homes than they're worth and they will deliver some measure of justice for families that have already been victims of abusive practices.
MARTIN: Mr. Secretary, I'd like to ask you to unpack some of this for us. I wanted to ask first, who will get relief under this settlement agreement? Is it only people who are affected by the abusive practices that the president talked about?
DONOVAN: Well, Michel, one of the things that is difficult about this is that these practices were so pervasive. You know, there's been a lot of focus on robo-signing and what happened to people right on the edge of losing their homes as they were going through the last weeks of the foreclosure process.
But the truth is, when we really investigated this, what we found was not only that - which was widespread - but we also found early on in the process when someone got 30 days behind, when they should have gotten a call from their lender to say: Hey, what's happening? You know, we have some options available for you. When they reached out to their lender to say, you know, I'm going through unemployment, something happened with my medical condition, my wife or my husband.
And so, what we saw was, folks who shouldn't have gotten into trouble, folks who should have been able to get some help early on that was both good for them and good for the lender didn't get that help. And so, it was very hard to go back and reconstruct exactly who were the people who needed to be targeted.
So, what we did is came up with a different kind of strategy. We do have payments that are available to families where there was direct demonstrable harm. They can show here, here's what happened to me. But we also said, you know what, these practices were so pervasive we should help provide help more broadly to homeowners that are struggling, homeowners that are behind on their payments, homeowners that are current on their payments but haven't been able to refinance because they're underwater to today's record-low interest rates and save about $3,000 on average a year.
So, we decided to sort of broaden the scope of what we were trying to do to help those that were harmed, but also to help more broadly the housing market. And let's recognize, too, these practices even if you live next door and were current on your mortgage and nothing happened to you, if you're next door to a foreclosure, you got harmed as well. So, the impacts of this are very, very broad on neighborhoods, on families, and our housing market. And so, we tried to get a comprehensive solution that would be targeted in the same way quite broadly.
MARTIN: And just to clarify what you're talking about, you're talking about the fact that the initial sort of impetus for this is that it was determined that banks were filing fraudulent court documents in thousands and thousands of cases. Documents that were required by the courts before the banks could proceed with foreclosure. And what you're saying is that you don't have to prove that you were actually a victim of that particular practice to benefit from this, is that right?
DONOVAN: That's right, Michel. And what I would say is while a lot of attention has been put on exactly what you talked on - talked about, the so-called robo-signing, our investigations were actually much broader than that. We began at FHA at HUD in the summer of 2010 an in-depth investigation of our largest servicers for a range of servicing violations. The kinds of things that I talked about, which are really, you know, foreclosing - moving forward on the process when you shouldn't have been in terms of foreclosing, but also things like not providing homeowners that are just...
DONOVAN: ...getting into trouble, the options they should get.
MARTIN: We're speaking with Housing and Urban Development Secretary Shaun Donovan about that $25-billion settlement with the nation's largest mortgage lenders. It was announced yesterday. It's intended, as he says, to provide relief to current and former homeowners who may owe more on their mortgages than their homes are now worth.
And just - Mr. Secretary, you have to know that critics are already complaining that this is just window dressing. They say once you factor in the 750,000 homeowners who would be eligible for a settlement payment, that the amount each one would get is maybe $2,000. I just want to play a short clip from a woman name Nicky DePuy of Cape Coral, Florida. And she talked to NPR's ALL THINGS CONSIDERED yesterday and this is what she said.
(SOUNDBITE OF ARCHIVED BROADCAST)
NICOLE DUPUY: Well, it's an insult, $2,000 generally doesn't even provide enough money to get into a rental property because you have to do first and last and the security deposit.
MARTIN: And part of her additional argument is that it really doesn't do much for people who've already lost their homes to foreclosure. What's your answer to that?
DONOVAN: Michel, it's really important that we're talking about this because there's some real misunderstanding about this part of the settlement. The fact is what you have is people who are in very different situations. There's a set of folks that were harmed by these practices who may have, for example, had some fees they were charged that they shouldn't have been or their paperwork was lost and it delayed them getting help but didn't stop them from getting help. And in lots of those cases, the harm was a few thousand dollars.
And what we've set up is almost like a class action process, where anybody within a certain group who had a mortgage that was in trouble at a certain time can get this kind of help with very little processing or paperwork or anything like that. A very simple process.
But if your harm was much deeper than that, if you lost your home and you shouldn't have and the damage was 50,000 or 100 or $200,000, you have two other ways that you can get help. One is we have a set up by federal regulators a full process where you can come in, document the harm that was done to you at the cost of the banks. You get full compensation for that.
And then third, nothing in this agreement stops an individual homeowner from going into court and going after a lender whoever it is for the harm that was done. So, you have to see those smaller payments to a broad group of people in the context of different avenues that those families have that are already available to them as part of the investigations that have been done into this. These - just egregious failures on behalf of the bank.
MARTIN: But more broadly, though, housing advocates say that they're happy about the provision of the settlement that says that these banks will now write down the principal amount, that's the amount of, you know, a part from the interest. And I hope most people kind of know what that is. But we understand - and of course many people - banks have been resisting writing down the principal amount, which is sort of the base amount of the loan.
But we understand that Fannie Mae and Freddie Mac which are these, you know, government-sponsored entities and the FHA and VA for the most part are resisting writing down the principal on the loans that they control. So, advocates are saying that 80 percent of Americans are excluded from what they think is perhaps the most powerful part of the settlement. And what do you say to that?
DONOVAN: Well, first of all, I'm glad that they recognize how important this principal reduction piece of this is. There has been virtually no principal reduction that's happened through this crisis. We've made progress in a lot of other fronts on modifications, on refinancing. Principal reduction, even though across the spectrum economists and others agree, it's one of the most important things we can do to help families get the housing market moving again, it hasn't been happening.
And so, it is a big victory. We'll get about $30 to $40 billion of principal reduction that will happen as a result of this settlement. That is very, very important. But we also have to recognize that the settlement is only one step. It's only a piece of a puzzle. And part of the way I would describe that so folks can understand it is, you know, if you think about the behavior that led - the reckless behavior that led to this crisis, the damage was created when these terrible loans were originated and securitized.
While the servicing practices that were really the issue that we settled yesterday increased that damage - they worsened it - they didn't create the damage in the first place. And so, what should be clear to folks is that, even though there's hundreds of billions of damage that was done, this settlement is very, very substantial payment for those irresponsible banks to have to make as a result of these practices.
And, in fact, if you look at it this way, this is the largest settlement of the entire financial crisis thus far. It's the largest federal-state settlement in the history of the country. So, it is very, very substantial.
DONOVAN: On the other hand, we're not going to stop there. The president announced a few weeks ago in the State of the Union a joint federal-state investigation that's going to continue to go after the banks for those origination and securitization practices, which is really what caused most of this damage. So, we're going to be aggressive going forward after this.
MARTIN: All right. Mr. Secretary, we lose you in about a minute and a half, so I just want to ask you finally that - this crisis has fallen very heavily on communities of color, as I know that you know. And I'd like to ask specifically about whether you believe that the settlement will offer relief to this particular group of people who seem to have paid a very heavy price.
DONOVAN: Absolutely, because, as you rightly say, the damage was so intense in communities of color. Before the president even walked into the Oval Office, Latino families, for example, had lost two-thirds of their household wealth just in four years, between 2005 and 2009, largely because of the housing crisis.
And so the relief, in turn, will be very targeted to those families and those communities. But the other thing I'd say, Michel, recognize - again, this was focused on the servicing practices. We are not releasing, as part of this settlement, any criminal liability, any civil rights or fair housing claims. In fact, we announced just a few weeks ago the largest fair housing settlement in the history of the country with Countrywide for their just egregious practices against minority homeowners.
And so, we're going to continue to be aggressive about those claims, that ability to go after these institutions for those other things that really damage minorities.
MARTIN: So, we have more to talk about and we do hope you'll come back and speak with us again. Shaun Donovan is the secretary of Housing and Urban Development, and he was kind enough to join us from his office in Washington, D.C. Mr. Secretary, thank you so much.
DONOVAN: Great to talk to you again, Michel. Transcript provided by NPR, Copyright NPR.