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Mortgage settlement with banks starts to ease foreclosure crisis

Nearly 140,000 homeowners have received a total of $10.6 billion in mortgage debt relief from March through June, a federal report on the banks' progress says.

August 30, 2012|By Jim Puzzanghera, Los Angeles Times
  • Overall, 137,846 struggling homeowners nationwide received some type of monetary relief from the banks during the four-month period starting in March for an average of about $76,615 each. Above, a foreclosed home is on the market last year in Miami.
Overall, 137,846 struggling homeowners nationwide received some type… (Joe Raedle, Getty Images )

WASHINGTON — The nation's five largest banks are off to a good start on their promise to help ease the foreclosure crisis, providing nearly 140,000 struggling homeowners with a total of $10.6 billion in mortgage debt relief, according to a government report.

But the banks have much more work to do to fulfill their requirements under a $25-billion agreement reached in February to settle federal and state foreclosure abuse investigations, key officials said.

And to keep the pressure on, the government released the preliminary report Wednesday — the first look at how Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co., Citigroup Inc. and Ally Financial Inc. were carrying out their commitments.

"We will continue holding the banks' feet to the fire in the months ahead, and we will be watching like hawks to make sure they live up to the requirements under this settlement," Housing and Urban Development Secretary Shaun Donovan said.

The report from the Office of Mortgage Settlement Oversight showed that Bank of America had faltered in one key area. It did not complete a single modification of a first mortgage from the settlement's start date of March 1 through June 30.

The other four banks had completed a total of 7,093 modifications of first mortgages worth $749 million during that same period. JPMorgan Chase completed the most, 2,920, with the highest value, $367 million.

Bank of America quickly responded to the report with updated numbers, saying that from July 1 to Aug. 21 it had completed 3,823 first-mortgage modifications, worth $596 million. Bank spokesman Dan Frahm said the modifications were difficult to complete by June 30 because each homeowner must first go through a three-month trial period.

Overall, 137,846 borrowers nationwide received some type of monetary relief from the banks during the four-month period for an average of about $76,615 each. Californians received about $4.6 billion in relief, by far the most of any state.

"We are happy with California's share of the pie, but the pie needs to get bigger," said Shum Preston, spokesman for California Atty. Gen. Kamala D. Harris, who was a key player in the settlement. "There's a lot of hurt out there."

The banks voluntarily provided the preliminary data before the first required report, due in November, and the data were not audited, said Joseph A. Smith Jr., the government-appointed monitor of the settlement. He released the information so the public could track the progress of the banks and the oversight of his office.

"Now that the information is out, it is going to facilitate a conversation, so to say, about how they're doing that will have an impact on the banks' motivation," Smith said. "I'm encouraged by where we are. But we're not going to declare victory."

The five largest mortgage servicers agreed to provide the relief to struggling homeowners as part of a settlement with federal officials and 49 states to end lengthy investigations into alleged "robo-signing" and other foreclosure abuses.

The banks have set aside about $20 billion to lower loan rates and principals and provide other relief directly to consumers, and $5 billion to the states, primarily for foreclosure relief and prevention programs.

The banks get credits for various types of homeowner relief. Each dollar forgiven in a short sale, for example, results in a credit of 45 cents if the bank owns the loan and 20 cents if it is held by investors.

The report did not say how much the $10.6 billion provided as of June 30 would reduce the $20-billion obligation. The largest amount of relief came in debt forgiveness as part of short sales, in which the bank allows a homeowner to sell a home for less than what is owed on the mortgage. The banks forgave about $8.7 billion in first- or second-mortgage debt as part of short sales.

In addition to the $749 million in principal reductions on first mortgages, the banks provided $231 million in principal reductions or outright forgiveness for second mortgages.

The banks also are adopting 304 servicing standards required by the settlement, with four of the banks saying that they implemented more than half the standard as of July 5. The report did not identify those banks.

Overall, Bank of America had provided the most relief to homeowners for the report period — $4.9 billion, nearly all in the form of short sales.

Kevin Stein, associate director of the California Reinvestment Coalition, a housing advocacy group, said he was concerned that most of the relief from the banks was in the form of short sales instead of principal reductions, which allows people to keep their homes.

"It's still early, and we want to be hopeful that will turn itself around," Stein said.

Donovan said short sales were easier to complete in the first few months of the settlement than principal reductions. But he said short sales are capped and are not as attractive to banks because they result in less credit toward fulfilling the settlement terms.

Katie Porter, a UC Irvine law professor who is monitoring the settlement compliance for the state attorney general, said the report showed that the banks had moved quickly to start providing relief, though their performance was uneven.

"We need to see more, but the trend is in the right direction," she said.

jim.puzzanghera@latimes.com

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