Five U.S. banks have provided about $22 billion in mortgage relief to customers under a deal to settle borrowers' accusations over foreclosures, a report by the settlement's monitor said on Monday.
The report said that Bank of America, which owes the most, improved in delivering first-lien mortgage modifications to customers, trailing only JPMorgan Chase through September.
Bank of America [BAC 9.49 0.37 (+4.06%) ] provided $889.2 million in first-lien modifications that reduced loan balances for consumers, a turnaround from August when the bank had completed none. JPMorgan Chase [JPM 40.59 1.06 (+2.68%) ] total was $903.1 million in modifications, the most of the five banks.
Monday's report by Joseph Smith, the former North Carolina Banking Commissioner who is serving as the settlement's monitor, said the five banks together have completed about $22 billion in customer relief, up from $10.6 billion in August.
Counting $4.2 billion more in active trial modifircations, the five banks have provided $26.1 billion in relief through September to 300,000 borrowers, according to the report.
The banks reached the settlement in February with state and federal officials to resolve allegations of faulty foreclosures. The pact requires banks to provide around $20 billion of consumer relief by taking actions such as reducing loan balances for struggling borrowers and refinancing loans for customers whose homes are worth less than the value of their mortgages.
The banks, however, have not necessarily met their obligations yet because the settlement only provides for partial credit for certain kinds of relief. The banks only receive credit for 45 cents of every dollar of a writedown through a short sale, for example.
Short sales — in which borrowers sell their homes for less than the value of the mortgage — accounted for the largest portion of the total relief, about $13.1 billion.
The banks reduced consumers' first-lien mortgage and home-equity debt by $6.3 billion through loan modifications and other actions. They also completed $1.4 billion in refinancings.
Bank of America delivered $11.8 billion in total relief to consumers, the most of any bank, with short sales accounting for $7.4 billion of its total. JPMorgan provided the second most relief — about $6 billion.
The other banks in the settlement are Wells Fargo [WFC 32.40 0.46 (+1.44%) ] ($2.5 billion in total relief), Citigroup [C 36.10 1.12 (+3.2%) ] ($1.1 billion) and Ally Financial ($587.8 million).
"I'm encouraged," Smith said in an interview. "I think we have made significant progress."
But he cautioned that no banks have met their obligations until their numbers are reviewed and credited.
If a lender does not meet its required relief within three years, it will be required to pay a penalty of no less than 125 percent of its unmet commitment, the report said.
Smith said he expects the banks will complete their requirements earlier than three years, although no bank has yet asked him to certify completion.
Banks are required to meet at least 60 percent of their obligations through modifying first and second loans, so short sales are not expected to eventually be the bulk of the consumer relief, on a credited basis.
Short sales comprise a lion's share of the relief because they can be counted as soon as a sale is completed, Smith said. Modifications aren't considered complete until after the borrower has made three payments.
Bank of America, which acquired troubled lender Countywide Financial in 2008, owes the most out of five banks, about $11.8 billion in consumer relief and other payments. The bank has said it will meet its obligations within the first year.
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Decent money will be will be
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Sentiment: Strong Buy
Each quarter, the banks must provide an update on their progress to the national settlement monitor and participating state attorneys general. When the monitor, Joseph Smith, issued his first report in August for the quarter that ended June 30, the banks as a group had made little progress. As a group, they had reduced only $750 million in first-mortgage principal.
BofA, which has the largest obligation, had done zero principal reductions.
The deadline for reporting data for the period ending Sept. 30 was Wednesday.
Perhaps hoping to repair its image, BofA disclosed that it had provided a total of $15.8 billion in various forms of assistance to 164,000 customers.
Chase disclosed late Wednesday that it had provided $7 billion in relief, but its obligations were about half of BofA's.
The banks do not get full credit for those activities under the settlement.
None of the other banks that are part of the agreement - Wells Fargo, Citibank and Ally/GMAC - has publicly disclosed its performance. Wells Fargo said it will provide details after the monitor releases its public report. "We anticipate that this report will be issued on Monday," Wells spokesman Tom Goyda says.
BofA provided the most detail. It said it has:
-- Completed or approved first-lien modifications for about 30,000 borrowers under the program, resulting in $4.75 billion in principal reduction. It also forgave $230 million in principal that had been in temporary forbearance before the settlement.
The average amount forgiven was $150,000, which reduced the borrower's payment by 35 percent, BofA Senior Vice President Eric Telljohann said in a news conference. He estimated that 40 percent of the principal reductions was on loans owned by BofA and 60 percent on loans it services for others.
-- Modified or extinguished home-equity loans or lines of credit for nearly 45,000 customers, resulting in $2.5 billion in relief.
-- Provided short sales or deeds in lieu of foreclosure for more than 62,000 customers, providing $7.4 billion in relief.
-- Provided $617 million in relocation assistance and pre-settlement deficiency waivers.
That adds up to about $15.5 billion, which far exceeds the $7.6 billion BofA is required to provide in these types of assistance.
However, banks don't get $1 worth of credit toward their settlement obligations for every $1 in relief. Instead, there is a complex crediting formula depending on the type of help.
For example, if the bank extinguishes a second lien that is more than 180 days delinquent (and thus unlikely to be paid off) it gets only 10 cents of credit for every $1 it forgives, Telljohann said.
After the crediting process, BofA is almost halfway toward meeting its $7.6 billion obligation, he said.
In addition, BofA must provide almost $1 billion in refinancing relief to homeowners who are current on their payments but have little or no equity in their homes. As of Sept. 30, it had refinanced about 1,000 loans representing about $250 million in unpaid balances.
BofA said its first priority was reducing principal for at-risk borrowers and that it is now ramping up its refinancing program, which under the settlement is only for mortgages the participating banks both own and service.
Chase, on the other hand, said it has fulfilled its refinance requirement. It refinanced about 12,000 underwater loans totaling $3 billion. It needed to refinance only $537 million in loans.
It said it has approved or completed $3 billion in first-lien modifications for nearly 30,000 homeowners through Sept. 30. The average principal reduction was $97,000.
It provided few other details. Chase must provide about $3.7 billion in non-refinance relief to customers. A Chase spokeswoman could not say when it will reach that goal but said it will be "well in advance" of the three-year deadline.
Both banks also said they were in compliance with about 300 new servicing requirements, such as providing borrowers seeking a modification with a single point of contact.
Sentiment: Strong Buy