The news is stunning. At the end of 2011, approximately four years since the crescendo of the mortgage foreclosure crisis, the U.S. Department of Justice (DOJ) has reached a settlement with Bank of America (BofA) concerning discriminatory lending practices by the BofA unit that used to be Countrywide Financial Corporation. In 2008, Bank of America acquired Countrywide and they have been paying for it in penalties and fees ever since, cleaning up the mess of failing mortgages and displaced home purchasers that Countrywide left behind.
The recent settlement concerns Countrywide’s practice of steering borrowers, typically minorities, to mortgages that cost them more than they needed to. As a result, many of these borrowers lost their homes due to foreclosure. The agreement involves a payment of $335 million from BofA to compensate some 210,000 victims of Countrywide’s practices. Add that to a $108 million settlement BofA reached with the Federal Trade Commission (FTC) to compensate 450,000 borrowers who paid inflated fees as they negotiated with Countrywide regarding defaults.
The good side of this story, if there is one, is that it was the nonprofit sector that doggedly brought the foreclosure crisis to light, identified the unindicted criminals behind these schemes like former Countrywide CEO Angelo Mozilo, and stayed on the case to make sure that the huge economic devastation wrought by the likes of Countrywide would not go unpunished—or more accurately, would not go without mechanisms of compensation and amelioration.
On the downside, as leaders at two of the most prominent nonprofits in this battle—the National Council of La Raza and the Center for Responsible Lending—have noted in the Wall Street Journal, it will be difficult to find some of the families among the victims and to calculate precisely how much compensation they should receive. The FTC has already learned many will not be findable; a previous DOJ settlement with the American International Group (AIG) found only 78 percent of the victims entitled to checks.
With lives uprooted by the loss of their homes due to disreputable lending schemes concocted by next-to-unregulated mortgage lenders and brokers, families are now supposed to line up and collect a cash payment to assuage their pain. Many will probably think this is just another public-private partnership of the banks to scam them out of more money.
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The Justice Department says it will take any of the unused funds and give them to nonprofits and public agencies for housing counseling programs, which is the ultimate irony of the DOJ and FTC settlements. Had Countrywide not been a mortgage lending bottom-feeder, this situation might have been avoided—though avoiding it would have required the kind of banking and consumer regulations sought by the Dodd-Frank Act. Congressional conservatives and high-power lobbyists from banks like Bank of America now strenuously oppose such regulation.
The crisis might also have been somewhat mitigated, though not averted, if these Countrywide-financed home purchasers had access to successful nonprofit-delivered housing counseling services for prospective homebuyers and existing homeowners encountering mortgage troubles. At the front end of the process, these counseling services might have prevented many foreclosures by providing homebuyers with assistance, training, and technical support to help them sidestep some of the built-in traps and problems of mortgages provided by Countrywide and other predatory lenders.
The experience of NeighborWorks America and others underscores the success of pre- and post-purchase housing counseling as a fact. So explain why the President’s initial FY2012 budget (which survived on Capitol Hill for a half-hour or so) pegged housing counseling at only $88 million, the same as the requested amount for FY2011. Even worse, the housing counseling budget for 2011 was zeroed out with no discernible effort to try to appropriate dollars to increase the availability of housing counseling services. For FY2012, Congressional appropriators continued to zero out housing counseling.
Now it appears that, rather than reaching an accommodation to approve a budget with reasonable numbers for housing counseling appropriations, Congress and the White House have decided to leave the function of housing counseling to the vagaries of legal settlements with banks charged with discrimination or other housing market crimes. Let’s make it clear: nonprofits, on their own, could not have headed off the Wall Street-induced recession, but nonprofit-delivered housing counseling has helped tens of thousands of households and could have helped perhaps hundreds of thousands more had our government made the needed public sector investment. It’s time for the entire nonprofit sector to fight for housing counseling appropriations delivered by nonprofit housing counseling agencies. Based on the evidence, this can continue to be an arena of nonprofit competence and accomplishment—if Congress and the White House remember that housing counseling requires an appropriations number above zero.