MONEY housing

Fannie, Freddie Announce Plans to Back 3% Down-Payment Mortgages

According to officials with the companies the move is designed to help those with lower income and good credit to afford homes.

TIME Innovation

Five Best Ideas of the Day: October 1

The Aspen Institute is an educational and policy studies organization based in Washington, D.C.

1. More face time, less screen time: To survive adolescence, kids need to put down their phones and practice interacting with each other.

By Cory Turner at National Public Radio

2. History texts may perpetuate stereotypes and deepen ethnic divides. The History Project is fighting bias with facts.

By the creators of the History Project

3. “Controlling wheat brings power.” Islamic State has carefully targeted farms and mills to tighten their grip in Iraq.

By Maggie Fick in Reuters

4. Because of innovative provisions in the $17 billion settlement facing Bank of America for its role in the housing crisis, families could get genuine much-needed relief.

By Ellen Seidman at the Urban Institute

5. The nation’s largest pension fund just pulled out of hedge funds, choosing transparency and accountability instead.

By Dean Baker at Al Jazeera America

The Aspen Institute is an educational and policy studies organization based in Washington, D.C.

TIME Ideas hosts the world's leading voices, providing commentary and expertise on the most compelling events in news, society, and culture. We welcome outside contributions. To submit a piece, email ideas@time.com.

MONEY

Student Debt Could Cost Housing Market $83B This Year

It might as well be a curse word for young adults. Student loans are now blamed for what would be a staggering, industry-shaking drop in home sales.

MONEY Banks

Bank of America Is Paying Up for the Mortgage Mess, But Who Will Get the Money?

Affordable housing construction
Kiet Thai—Getty Images

The banks has agreed to provide billions of dollars in "consumer relief." Here's what that actually means.

Last week, Bank of America agreed to pay almost $17 billion dollars in a settlement with the Justice Department. The settlement is about what Bank of America (and Merrill Lynch and Countrywide, which BoA later acquired) disclosed to investors about mortgage-backed securities, not about how it treated homeowners. Nonetheless, a large portion of the settlement—$7 billion—will be used for consumer relief.

So who will actually see some of that money? Bank of America can pay off its new obligation in four ways:

Reducing the principal or modifying payments on some mortgages. Mortgage modification isn’t anything new—the government has had programs to encourage banks to do this for years, though they’ve been criticized as too little or too late. However, compared to past settlements, the BoA deal does break some ground by targeting the relief. For the first time, 50% of principal reductions will go to borrowers in the areas hardest hit by the housing crisis. The Office of Housing and Urban Development has published an interactive map of these areas here. The settlement also gives the bank incentives to prioritize FHA and VA loans.

Bank of America’s agreement with the government also provides more substantial aid than previous settlements in certain cases. For example, BoA is required to provide $2.15 billion in principal forgiveness, which consists of lowering underwater mortgages to 75% of the property’s long term value, and reducing the mortgage’s interest rate to 2%.

“Those borrowers who do get assistance through the settlement are getting pretty substantial assistance,” says Paul Leonard, founder of the Center for Responsible Lending.

In addition to principal reduction, BoA will receive credit toward the settlement amount by forgiving mortgage payments, allowing for delayed payments, or extinguishing some second liens and other debts.

Who actually gets this help, though, is up to BoA. “Bank of America still gets to make all the final calls,” Leonard explains. “Even if I’m a borrower in default in a hardest hit area, who would seem like natural candidate for assistance, there is no entitlement to me.” As for the timetable, the bank has until 2018 to provide this aid, although the agreement includes incentive to finish early. BoA suggests anyone in serious hardship call 877-488-7814 to see if they qualify for an existing program.

More low and moderate income lending. For low-income Americans, first time homebuyers, or those who lost their home in a short sale or foreclosure, it can be extremely difficult to get a loan—even with a good credit. This settlement offers BoA credit for giving mortgages to these groups, or those in hardest hit areas, as long as they have respectable FICO score.

Building affordable rental housing. It’s also hard to find cheap rental housing, and financing for such development is scarce. As part of BoA’s agreement with the Justice Department, the bank will provide $100 million in financing for construction, rehabilitation or preservation of affordable rental multi-family housing. Half of these units must be built in Critical Family Need Housing developments.

Getting rid of blight and preventing future foreclosures. One side effect of the housing crisis was the large number of abandoned or foreclosed homes plaguing neighborhoods across the nation. BoA will earn credit for demolishing abandoned homes, donating properties to land banks, non-profits, or local governments, and providing funds for legal aid organizations and housing counseling agencies. The bank will also receive credit for forgiving the principal of loans where foreclosure isn’t being pursued.

Housing advocates say they’ll be keeping an eye on how quickly BoA and other banks that have agreed to consumer relief act on these programs. One worry is that by going slowly they could end up paying off the settlements with modifications and lending they would have done anyway. “If the promised relief arrives, as written, then it will bring a measure of relief that is badly needed by a lot of communities out there,” acknowledges Kevin Whelan, national campaign director of Home Defenders League. “But compared to the damage these institutions caused, it’s not really a large amount of money.”

Related:
What Bank of America Did to Warrant a $17 Billion Penalty
How to Get a Mortgage When Your Credit is Bad
Behind on Your Mortgage? You May Be Eligible for Some Help

TIME Money

Bank of America Reported Close To Record DOJ Settlement

Paying up for their role in the housing crisis

Bank of America may pay $16 billion to $17 billion to the Department of Justice as a settlement for their role in the housing crisis, according to media reports.

That would be the highest payment to the DOJ for mortgage securities fraud to date, exceeding the $13 billion settlement that J.P. Morgan Chase negotiated in November.

Bank of America issued the most mortgage securities of any large bank on Wall Street in the years leading up to the financial crisis. According to the Wall Street Journal, of the $965 billion in mortgage securities that the bank issued between 2004 and 2008, $245 billion in securities have defaulted or become delinquent.

 

TIME Economy

Wall Street Payouts Over Mortgage Crisis Top $100 Billion

Citibank To Cut 11,000 Jobs
A 'Citi' sign is displayed near Citibank headquarters in Manhattan on December 5, 2012 in New York City. Mario Tama—Getty Images

But U.S. assets lost $2.7 trillion in value from 2007 to 2010

Citigroup is reportedly closing in on a settlement deal that could cost the bank roughly $7 billion for its alleged involvement in the mortgage crisis.

The sum took Wall Street by surprise, the Wall Street Journal reports. Analysts predicted a settlement of $2 billion, perhaps $5 billion, but nowhere near the Department of Justice’s original request for $10 billion. That was approaching JPMorgan Chase’s record payout of $13 billion, and Citigroup argued it had sold far fewer mortgage-backed securities, so it should pay a commensurately smaller price.

Maybe so, but the Justice Department had momentum on its side. Banks have recently been falling like dominoes before its demands.

From 2010 to 2013, the nation’s six largest banks paid a total of $85.7 billion in settlement fees for their involvement in the mortgage crisis, according to SNL Financial. Add in two more whopping settlements in 2014, plus Citigroup’s impending deal, and the legal bill tops $100 billion. Citigroup’s tab would put it roughly in the middle of the past three years of legal shellackings.

Settlements
Source: SNL Financial, TIME

This partly reflects a more aggressive push by U.S. Attorney General Eric Holder to hold big banks accountable for the housing crisis, even as critics ask how it is that no bankers have successfully been prosecuted since the collapse. Holder himself once said that prosecution of a big bank might be “difficult,” given the complexity of their trades (a statement he later recanted).

But prosecution remains purely theoretical so long as Citigroup, like every other big bank before it, hops on the settlement bandwagon. After all, a lawsuit would have posed a public relations nightmare for the banks. No bank wants to be seen digging in its heels over sums that are positively dwarfed by the losses that mortgage-backed securities unleashed on the larger economy. The IMF estimates that U.S. assets lost $2.7 trillion in value from 2007 to 2010. That’s 28 times what big banks have subsequently paid in settlements.

Untitled
Sources: IMF, SNL Financial, TIME

No wonder, then, that Citigroup is expected to wrap up its deal with regulators as early as next week.

MONEY Housing Market

WATCH: Cities with the Most Underwater Homes

In some cities, a huge number of homes are worth less than what their owners owe on their mortgage. See where the market is hardest hit — and how first-time homebuyers are suffering.

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