The five largest U.S. mortgage servicers say they have given about $10.6 billion in relief to borrowers under terms of a $25 billion settlement over abusive foreclosure practices, according to a court-appointed monitor.
Most of that aid, $8.7 billion, came in the form of short sales, the Office of Mortgage Settlement Oversight said today in a progress report on implementation of the accord. Lenders including JPMorgan Chase & Co. (JPM) and Wells Fargo & Co. (WFC) also forgave $749.4 million in mortgage debt, according to the report.
“There’s some evidence from this report that the banks are beginning to do some significant work on consumer relief,” Joseph A. Smith Jr., the former North Carolina regulator acting as settlement monitor, said in a telephone interview. “I’m not declaring victory, but I do think we’ve made a solid start.”
The report, an unaudited estimate of banks’ efforts through the end of June, isn’t a formal assessment of progress toward meeting their obligation under the settlement. The pact reached earlier this year requires lenders to spend $20 billion on borrower relief and an additional $5 billion in payments to states and the federal government.
“The banks in general are heading in the right direction,” Shaun Donovan, U.S. Department of Housing and Urban Development secretary, said in a call with reporters.
Banks told the settlement monitor they had aided a total of 137,846 borrowers. Efforts varied widely: Bank of America Corp. reported that it hadn’t done any loan modifications or refinancings under terms of the settlement by June 30. Meanwhile, JPMorgan Chase & Co. reported spending $428 million to reduce outstanding principal on loans.
Bank of America reported spending $4.8 billion on short sales through June 30 and JPMorgan had $2.4 billion. While Bank of America’s overall target for borrower relief is $8.6 billion and JPMorgan’s is $4.2 billion, the short sales don’t count dollar-for-dollar toward those totals.
That’s because short sales “are not as valuable as getting principal reductions that keep people in their homes,” Donovan said on the conference call.
Banks get credit toward the settlement for activities including reducing amounts owed on loans and cutting interest rates. While the firms also get credit from forgiving debts in a short sale, they get only 20 cents to 45 cents on the dollar for short sales, and there’s a cap on how much credit can come from those transactions, officials said during the call.
Separately today, Bank of America said it had completed about $3.2 billion more in relief since June 30. The Charlotte, North Carolina-based lender had forgiven about $1.65 billion in home equity lines of credit, completed $1 billion in short sales and $596 million in mortgage modifications from the end of June through Aug. 21.
“You are seeing a faster start on short sales completed under the agreement because that didn’t require a new process to be built, compared to first-lien modifications and the refinance program,” said Dan Frahm, a Bank of America spokesman. Eventually, most of the Bank of America credits will be loan modifications, he said.
Under the settlement, at least 60 percent of the borrower relief must be principal writedowns, according to Donovan, who said he’s confident the banks will perform reductions agreed upon in the deal.
All of the numbers are preliminary. Smith said his office will scrutinize the aid the banks say they have provided and apply formulas outlined in the settlement to determine how much credit they have earned toward their total obligations.
“It’s early days, but I am satisfied that we’re prepared to do a proper job,” he said.
The settlement accord, filed in federal court in Washington in February, was reached after attorneys general from all 50 states announced a probe of foreclosure practices amid disclosures that banks were using faulty documents to seize homes.
Illinois Attorney General Lisa Madigan said in an e-mailed statement that she is “cautiously encouraged” by the report.
“I will continue to monitor the banks’ efforts to fulfill their obligations under this settlement, as my office continues its work to hold banks and other financial institutions accountable for the destruction they’ve caused in our communities,” she said.
About $17 billion of the agreement will pay for mortgage debt forgiveness, forbearance, short sales and other assistance to homeowners. Servicers will also provide $3 billion in refinancing to lower homeowners’ interest rates. The settlement also sets new standards for servicing loans to prevent abuses.
To contact the reporter on this story: Clea Benson in Washington at email@example.com