(Cross-posted from MyHomeForGood.com Blog)
In the largest settlement between a single company and the Justice Department in history, Bank of America agreed to pay a $17 billion penalty for harmful behavior that contributed to the financial collapse of the late 2000s. As part of the deal, Bank of America will offer $7 billion worth of consumer relief to affected homeowners.
Since the $7 billion will likely come in multiple forms, NCLR applauds the appointment of an independent monitor to oversee the settlement’s implementation. A strong monitor can help ensure that relief is distributed to struggling homeowners who need it most.
Among other methods, this agreement allows Bank of America to give struggling homeowners real relief in the form of principal reduction, a proven strategy that NCLR has long supported. Principal reduction allows borrowers to become current on their mortgages and escape high payments that were inflated by the housing bubble.
Principal reduction benefits borrowers and lenders alike. It decreases a family’s chance of future delinquency, enables them to stay in their homes, and helps them avoid unnecessary foreclosure. And when families stay in their homes, lenders win too. The alternatives, such as foreclosure or maintenance of an abandoned home, frequently cost lenders more and compromise the value of surrounding homes.
During the financial crisis, large banks targeted communities of color, including the Latino community, with predatory loans that the banks knew borrowers could not repay. As millions lost their homes and livelihoods to foreclosure, Latino wealth was decimated, and it has yet to recover from crippling losses.
Despite the considerable harm that dishonest mortgage practices have caused, though, Latinos are still strong believers in homeownership, with a majority of Latino voters saying that they consider homeownership a part of the American Dream. By 2020, half of all new home buyers will be Latino.
NCLR urges the independent monitor and Bank of America to fully comply with all aspects of the mortgage settlement, whether by offering consumer relief through principal reduction, canceling payments, or providing cash payouts to struggling homeowners or victims of wrongful foreclosure.
There are also concerns that homeowners applying for relief could be penalized through a larger tax bill, an issue the Justice Department is working to resolve, though it will likely require a permanent legislative solution. Congress must act quickly to ensure that this settlement does not harm the very homeowners it is designed to assist.
While nothing can undo the damage caused by wrongful foreclosure and the large-scale loss of wealth during the financial crisis, the Latino community deserves real relief from these issues. The Bank of America settlement is a step in the right direction, and we hope it will mark a turning point for Latinos who have confronted the loss of their most valuable assets.