Bank of America (BAC) is touting some good news: It’s completed or approved $15.8 billion in relief for 164,000 homeowners as part of the national mortgage settlement signed in February. BofA says those figures include approvals to cut the mortgage principal owed by 30,000 homeowners. It says it’s on track to fulfill its obligations in the first year of the program, rather than the three years banks have to comply.
The settlement grew out of the robo-signing scandal that revealed shoddy procedures at the mortgage-servicing operations of the U.S.’s largest banks. Yet the banks aren’t shouldering the full burden of the penalties. That’s because many of the mortgages on which they are reducing principal are owned by investors, not the banks. The Financial Times reports that 60 percent of the first-lien principal Bank of America has agreed to reduce is from loans that were bundled into mortgage-backed bonds sold to hedge funds, pension funds, and other institutional investors. The settlement allows the banks to reduce principal in loans they service but do not own.
Critics have raised questions about other parts of the settlement. Borrowers who think they lost their home through a wrongful foreclosure are entitled to a so-called Independent Foreclosure Review. The investigative newsroom ProPublica reports that the reviews have been far from independent, with the banks exerting undue influence over the review process.
Another problem: States received money to help homeowners and prevent foreclosures, but many have diverted their share of the cash to plug holes in general funds.
The best news for homeowners comes from the strengthening economy. Today the Mortgage Bankers Association reported a drop in the number of seriously delinquent borrowers—that is, those at least 90 days behind on payments or in foreclosure. Just over 7 percent of borrowers are seriously delinquent, the lowest level since 2008. According to a post on Bloomberg this morning, “more borrowers were able to make their monthly payments as [the] unemployment rate dropped to 7.8 percent in September, the lowest since January 2009.” An improving job market may be the best medicine for the housing crisis.