Center for New York City Neighborhoods Executive Director Christie Peale stands with New York State Attorney General Eric T. Schneiderman at the November press conference announcing a $13 billion settlement with JPMorgan Chase.
The Center for New York City Neighborhoods was proud to stand with Attorney General Eric T. Schneiderman and Jennifer Ching, Project Director at Queens Legal Services, last month to announce a historic $13 billion settlement with JPMorgan Chase. This settlement will return $1 billion to communities across New York State, representing a monumental victory for New York homeowners.
The $13 billion settlement resolves federal and state civil claims with JPMorgan Chase arising from the sale of residential mortgage-based securities prior to 2009. It will provide $4 billion in consumer relief, of which roughly $400 million will flow directly to New Yorkers experiencing some form of mortgage distress.
This settlement represents a critical victory for homeowners and advocates and the resources it will provide for New Yorkers are strongly needed. The challenges of the foreclosure crisis have been with us since 2007, and, for many New Yorkers, are a daily source of stress, confusion, and anger. It may not be in the papers every day, but across the state and the country, families are confronting one of the biggest and hardest challenges they’ve ever met. According to a recent report from New York State’s courts, there are over 80,000 homeowners across the state stuck in the legal process of foreclosure—and tens of thousands more who are behind on their mortgages.
In addition to providing more funding for legal services and housing counseling, we at the Center for New York City Neighborhoods are especially pleased to see that the settlement includes strong provisions mandating first lien principal reductions. The Chase settlement improves on advances made under the National Mortgage Settlement by putting targets and timelines on principal reduction, giving advocates the tools they need to hold banks accountable.
After working with over 25,000 homeowners, we’ve learned that principal reduction is the gold standard when it comes to preventing foreclosures. Principal reduction programs reduce mortgage balances for underwater homes, thereby making monthly payments affordable again and allowing homeowners to remain in their homes.
There are numerous benefits to principal reduction for homeowners, lenders, and communities. Helping homeowners remain in their homes is essential for those communities that have been destabilized by a tide of foreclosures. Properties that are foreclosed upon cause neighboring property values to drop, as well as an increase in crime rates. Principal reduction programs can also benefit lenders by allowing them to avoid the costly foreclosure process.
New research has demonstrated that principal reduction is the most effective way to keep underwater homeowners from losing their homes:
– A recent Standard & Poors analysis has shown that the likelihood of a new default is much lower for borrowers who obtain a principal reduction, and that these borrowers generally have a better chance of staying current on their mortgages afterward.
– A government analysis of outcomes from the Home Affordable Modification Program (HAMP) found that homeowners who receive principal reductions are more likely to remain current on their mortgage payments than homeowners who received loan modifications without principal reductions. The study determined that homeowners who received loan modifications with principal reductions were 24% less likely to redefault than those who received a modification with payment reductions, but neither forgiveness nor forbearance.
This settlement with JPMorgan Chase gives us the opportunity to show other banks further evidence that principal reduction works. It will mean more homeowners making mortgage payments, staying in their homes, and leading the way to a strong economic recovery.
Executive Director, Center for NYC Neighborhoods