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The Latest SERVICING Or ig i nat ion s e r v ic i ng a na ly t ic s Bernanke Targets Nation's Most Compromised Borrowers Reiterating the escalated impact the housing crisis had on minority and low-income borrowers, the Fed chairman showed support for hard-hit consumers. I n a speech at the Operation HOPE Global Financial Dignity Summit in Atlanta, Federal Reserve Chairman Ben Bernanke spoke of the amplified effect the housing crisis has had on minorities and low-income families across the country. "Lower-income and minority communities are often disproportionately affected by problems in the national economy, and the effects of the housing bust have followed that unfortunate pattern," Bernanke stated. He pointed out that while homeownership has declined for the nation overall, the decline has been steepest among households with incomes of $20,000 or less. The homeownership decline among African-Americans is also steeper than the national average, Bernanke said, referencing data from the Census Bureau. The homeownership rate declined by five percentage points for African-Americans from 2004 to 2012, while the remainder of the population has seen a decline of about two percentage points. The effects of tightening credit standards follow the same trend, according to Bernanke. Since 2006, mortgage lending to African-Americans and Hispanics has decreased by 65 percent, whereas mortgage lending to non-minorities has decreased by less than 50 percent. Over the same time period, loan originations decreased in lower-income neighborhoods by about 75 percent while falling about 50 percent in middle- and upper-income neighborhoods. se c on da r y m a r k e t be used to evaluate progress toward the banks' $20 billion obligation" since it represents the gross amount. While servicers can receive credit through a variety of forms of relief, at least 60 percent must be through first and second lien principal reduction modifications and no more than 10 percent can be deficiency waivers. Servicers also have three years to meet the minimum relief requirements, but they are being encouraged to offer relief sooner through additional credit. If servicers provide first or second lien principal reductions or provide credited refinancing activities, they receive an additional 25 percent credit if the relief is completed by spring's deadline. BofA recently announced that it anticipates fulfilling consumer relief requirements in the first year. If servicers don't complete their requirements within three years, they will pay 125 or 140 percent of their unmet commitment amount. Out of the $26.11 billion, $2.55 billion was from principal writedowns through first lien modifications, while $2.77 billion came from second lien forgiveness or modifications. The majority came from short sales, $13.13 billion. Another $1.44 billion went toward refinancing. As part of the agreement, servicers also had to implement more than 300 servicing standards by October 3. The types of relief that servicers can offer through the deal include first and second lien modifications, enhanced borrower transitional funds, facilitation of short sales, deficiency waivers, forbearance for unemployed borrowers, anti-blight activities, benefits for members of the armed services, and refinancing programs. Tracking statistics from each large financial institution, the settlement monitor mandated the following consumer relief obligations under the agreement: Ally, $200 million; BofA, $8.5 million; Chase, $4.2 billion; Citi, $1.7 billion; and Wells Fargo, $4.3 billion. "Indeed, as a result of the crisis, most or all of the hardwon gains in homeownership made by low-income and minority communities in the past 15 years or so have been reversed," Bernanke said. According to Bernanke, two types of discrimination remain a risk for low-income and minority Americans hoping to purchase homes. They include redlining— discrimination against minority neighborhoods—and pricing discrimination, which occurs when minority borrowers are charged more than non-minority borrowers. "The Federal Reserve has been vigilant in identifying and stopping such abuses, and we remain committed to vigorous enforcement of the nation's fair lending laws," Bernanke said. The M Report | 51