As part of a massive settlement with the federal government, the nation’s five largest banks have provided more than $10 billion in mortgage relief to struggling homeowners in the past year. This, according to a preliminary progress report that was part of the deal, was issued by the Office of Mortgage Settlement Oversight, which is charged with monitoring and ensuring the $25 billion settlement goes where it’s supposed to. The problem is, as far as some homeowners are concerned, it appears the banks are focusing more in the short sales and deed in lieu of foreclosures, which mean the homeowners lose anyway.
The five banks — Bank of America, Wells Fargo, Citibank, JP Morgan Chase, and Ally Financial have helped approximately 138,000 homeowners and have offered relief averaging $76,615 per borrower between the first of March and the end of June 30, the report notes. Further, nearly half of the total, $4.9 billion, comes from Bank of America. Ally Financial, the smallest of the lenders, has submitted just over $500 million in claims.
The goal of the lawsuit and subsequent settlement was designed to right the wrongs associated with the foreclosure processing abuses that go as far back as 2008. The deal, which was approved by a federal judge in April, includes giving the banks credit for helping homeowners avoid foreclosure. That credit includes reducing the principal on loans and refinancing mortgages to lower interest rates. To date, however, most of the credits banks have received for relief efforts — 80% — have been for debt forgiveness for deed in lieu of foreclosure or short sales. In a deed in lieu, homeowners hand over ownership of their home to the bank in exchange for debt forgiveness.
In a short sale, homeowners sell their home at a price that is less than what they owe the bank and the bank agrees to absorb the loss. That said, in both of those scenarios, the homeowner loses his home. Further, the massive hit their credit scores take makes it impossible to find future home financing products.
Of the $10.6 billion in relief lenders have given to homeowners under the deal, $8.6 billion has gone toward short sales and deed-in-lieu of foreclosures, according to the report. Lender Bank of America provided some $4.8 billion in relief through this method, the most of any so far, while JPMorgan Chase came in second with $2.4 billion. “Short sales are quick and dirty (modifications),” said Geoff Greenwood, communications director for the Iowa attorney general’s office. “That’s why you’re seeing more of them coming out of the chute.”
Shaun Donovan, secretary of the U.S. Department of Housing and Urban Development says there does exist a cap on how much lenders can claim for short sales under the settlement deal. Once each the five banks reach their limits, they will be unable to make any further claims on those terms under the settlement.
Interestingly, what’s not been seen is the $17 billion in principal reduction that lenders have promised as part of their agreement. All five lenders agreed they would reduce the balance owed on mortgages for those who either owed far more on their homes than they were worth or who were behind on payments. The goal was to close the gap on the mortgage balance and bring it closer to the actual value of the home. This would also allow the homeowners to lower their monthly payments and thus reduce the odds of foreclosure. Only $1 billion in principal reductions have occurred, though. That accounts for around 7,000 homeowners who’ve had principal forgiven on their first mortgages. A few saw reductions on their second mortgages.
Chase has completed the most modifications on first mortgages, $376 million worth while Bank of America has submitted no modification claims on first mortgages between March and June. It’s important to note, however, it has started nearly $2 billion trial modifications that continue to move through the trial process, more than any other bank. In second place for trial modifications is Chase with $1.2 billion that have been offered and/or approved.
The bigger picture will emerge once all of the modifications have been accounted for. Donovan said the numbers will increase “dramatically” and says many modifications weren’t ready to be counted for this initial report. The settlement was designed to require borrowers to keep up payments during a 90-day trial period before they’re considered successful modifications. At that point, the monitor will credit the cost of the modification to the bank’s account.
Currently, more than 28,000 trial modifications of all types are in progress, said Donovan. Not only that, but an additional $3 billion worth of modifications should be included in the first official report to be released in November. He reiterates that the banks are moving in the “right direction” and says the real relief is to the homeowners.