Deutsche Bank has decided that none of the more than $4 billion it promised to spend on consumer relief after the global mortgage crisis will go to distressed U.S. homeowners, according to a report by the monitor of the 2017 settlement.
Instead, the consumer-relief money will be spent on originating new loans, says a Feb. 13 report by the bank’s monitor, Michael Bresnick.
The decision reverses pronouncements by the German bank and the U.S. Justice Department that some of the funds — part of an overall $7.2-billion settlement over bad mortgage bonds sold before the 2008 crisis — would go to aiding people who were in imminent risk of defaulting on their mortgage payments, had especially high interest rates or owed more on their mortgage than the value of their home.
The change in plans “may disappoint distressed homeowners and others, including the many individuals who have reached out to the monitor over the past two years, hoping to receive different types of consumer relief from the bank,” Bresnick wrote in the report, which was posted online.
Bresnick, a partner at the law firm Venable and a former U.S. prosecutor, declined to comment for this article. The Justice Department didn’t have a comment.
The bank has already received consumer-relief credit for more than $1.5 billion spent on originating loans, the report said. Bresnick wrote that he planned to provide a more detailed analysis of the loans that Deutsche Bank had submitted for consumer-relief credit, such as “where they were made and how the loans are similar to or different from those in the overall market.”
The bank said in a written statement that its consumer-relief program had provided financing to more than 190,000 homeowners, specifically to low- and moderate-income homeowners or homeowners in areas hit hard by the financial crisis. “As reported by the monitor, we have decided to focus our efforts on helping people purchase homes as the most efficient and effective way of delivering consumer relief given current market conditions and our financing expertise,” the bank said.
The Justice Department was criticized over earlier mortgage settlements that allowed banks to use settlement money to fund new loans rather than provide help to homeowners affected by the financial crisis. The handful of crisis-era bank investigations settled by the Justice Department under President Trump included no money for consumer relief.
Deutsche Bank’s reversal is “again letting the major financial institutions who caused the mortgage crisis and profited from the mortgage crisis to get off scot-free,” said Bruce Marks, chief executive of the Neighborhood Assistance Corp. of America, a housing advocacy group.
The Deutsche Bank settlement, completed in the final days of the Obama administration, resolved a years-long U.S. investigation into Deutsche Bank’s sale of mortgage-backed securities. The deal required the bank to pay a $3.1-billion civil penalty and provide $4.1 billion in consumer relief.
The negotiations over the United States’ investigation of the bank spooked investors, with initial reports saying it could cost $14 billion to resolve. Years of low share prices and layoffs have prompted questions about whether Deutsche Bank needs to be combined with another German bank. The bank is also awaiting the outcome of U.S. probes, including into whether the bank helped wealthy Russians launder billions of dollars in illicit funds, while Democrats have begun digging into Deutsche Bank’s relationship with Trump.
Unlike many other Justice Department settlements with banks, Deutsche Bank’s agreement appeared not to require that a portion of the so-called consumer relief money be earmarked for loan modifications. In announcing the agreement, however, both the bank and the Justice Department said the bank would spend some of the money on loan modifications and even loan forgiveness.
“The consumer relief is expected to be primarily in the form of loan modifications and other assistance to homeowners and borrowers, and other similar initiatives to be determined, and delivered over a period of at least five years,” Deutsche Bank told investors on Dec. 23, 2016.
Earlier monitor reports said the bank was planning to offer loan relief and had entered into financing arrangements with two companies specializing in modifications.
“The bank now has declined to pursue these options for relief,” the latest monitor report said.
“It will not, after all, help any underwater homeowner by forgiving a portion of the principal owed on a mortgage, offer forbearance to any homeowner finding it difficult to make a monthly mortgage payment, or provide any of the other relief addressed in the monitor’s prior report.”