Rhode Island received $172 million of a $25 billion national settlement compensating states for improperly foreclosed homes in early February. The $25 billion settlement, a joint effort between 49 state attorneys general and the federal government, involved five of the country's largest loan providers - Ally Financial, Bank of America, Citigroup, JPMorgan Chase and Wells Fargo.
Two Rhode Island state legislators, state Rep. Daniel Gordon, R-Portsmouth, Tiverton and Little Compton, and state Sen. Bethany Moura, R-Cumberland and Lincoln, are threatening to take legal action and encourage municipalities to sue the banks for additional compensation.
"Picture this. A family. The stress, the embarrassment of having to uproot their children from schools, having to look for some place to live, worried about jobs ... and the proposed compensation to make them whole is a measly $2,000 (per family)?" Gordon said.
Rhode Island Attorney General Peter Kilmartin supports the settlement's conditions, according to his spokesperson Amy Kempe. The settlement will help victims more than pursuing litigation that would have taken far longer and been riddled with pitfalls, Kempe wrote in an email to The Herald.
"The settlement requires banks to provide relief to homeowners through principal reduction, mortgage modification and direct payments to those who were previously foreclosed upon," Kempe wrote.
But Gordon disagreed, claiming there has been little improvement in bank practices since the agreement.
"Banks are doing the same exact thing. Nothing has changed. Other than money changing hands, they're still doing the same things as before," Gordon said. He said foreclosures have increased since the settlement. "While they were hammering this agreement out, there was a hold on foreclosures. Now that this thing has gone through, foreclosures have actually accelerated."
The investigation into foreclosure and mortgage procedures began in 2010 at the height of the national foreclosure crisis, Kempe wrote. The banks in the settlement "soon acknowledged that individuals had been signing thousands of foreclosure affidavits without reviewing the validity or accuracy of the sworn statements," Kempe wrote. This practice came to be known as robo-signing, because mortgage providers and loan servicers were approving foreclosures of homes without any scrutiny.
Other malpractices occurred as well, Kempe wrote. Banks would tell clients that they were on track for a corrective loan modification - if they were having trouble meeting payments - while simultaneously filling out paperwork to foreclose on them. Poor documentation practices also led to long delays in the processing of loan modification requests, which in turn accelerated foreclosures, Kempe wrote.
Moura, who could not be reached for comment, called the settlement "an insult," according to an article in the Woonsocket Call. At a Feb. 14 press conference, Moura said that promises of principal reduction are often left unfulfilled. "When you are promised principal reduction in this deal, get over it, it's not going to happen," Moura added.
The settlement will provide up to $152 million in relief to Rhode Island homeowners who currently need loan modifications to avoid foreclosure, according to Kilmartin's website. The settlement will also provide up to $7.2 million in aid to homeowners who still have their homes but are on the verge of defaulting, according to the website. The settlement stipulates that the two types of relief will not come from direct payments to victims, but from the banks themselves who will have to change policies to save clients money.
The settlement also provides $3.1 million in direct payments to those who lost homes due to foreclosure.
But Gordon said the stipulations for Rhode Islanders remain vague. "That's actually the boilerplate language that was put together by the attorneys and the government to hammer this thing out," Gordon said, adding that the settlement says "everything's going to be fine, when that couldn't be farther from the truth."
