A substantial foreclosure abuse settlement has led to $26 billion in relief for beleaguered homeowners, according to a government report released on November 19th.
Concluded in February, the settlement dealt with allegations, some dating back to 2008, that banks used fraudulent or faulty paperwork to seize homes. Allegations included the use of robo-signers, bank officials who signed off on thousands of foreclosures a day without examining the details of individual cases. The settlement involved some of the country’s largest lenders, including Bank of America, JPMorgan Chase, Wells Fargo, Citibank, and Ally Financial. As part of the conditions of the agreement, these banks were forced to modify loan terms, reduce interest rates, or forgive standing debt on the part of the homeowner. Mortgages owned by mortgage backers Fannie Mae and Freddie Mac are not affected by the settlement, nor are those insured by the Federal Housing Administration.
A series of preliminary findings, November’s report was released by the Office of Mortgage Settlement Oversight, a watchdog agency created as part of the settlement. More time is needed to fully examine the data provided by the lenders, and a fully audited report is not expected until mid-2013.
Currently, the banks cited in the settlement claim that over 300,000 borrowers have received mortgage relief in some form as part of the agreement. More than 20,000 borrowers completed loan modifications, lowering their mortgage debt by $116,929 each on average. Another 30,000-plus homeowners have been granted trial modifications which will cost the banks $135,929 per borrower. Banks also reduced interest rates for nearly 40,000 loans by an average of 2.34 percentage points, leading to a total of $1.44 billion in payment relief.
While the banks have supplied more relief than required under the terms of the settlement agreement, they will not receive credit for all of it. The terms of the settlement give banks full credit for reducing principal on first mortgages, but only allow them partial credit for some other relief. In short, erasing home equity loans may earn banks as little as 10 cents on the dollar in credit toward the $26 billion settlement, while forgiving missed mortgage payments may only earn them 5 cents on the dollar.
This news comes at a time when foreclosures nationwide have reached a five-year low. Some experts fear that the conclusion of this settlement may lead to another round of repossessions, as banks have a clear new set of rules for conducting foreclosures. Time, as always, will tell.