The $25 billion national mortgage settlement, intended to help homeowners affected by the housing crisis, appears to be running ahead of schedule, according to a new report by the monitor of the program.
But the number of households helped by the settlement has fallen far short of the original predictions, and more people gave up their homes in short sales than received debt reduction that would have allowed them to stay in their homes.
Early last year, five banks signed on to the settlement over their use of mass-produced, faulty documents to evict homeowners. As of Dec. 31, they had provided $38.7 billion in relief in raw dollar terms, the report said. But because not every type of relief is counted the same way under the settlement’s terms, they had fulfilled only about 80 percent of their total obligation.
Before Wednesday, banks had self-reported their progress in raw dollar terms. The new report is the first in which the monitor, Joseph Smith, has disclosed the amount of credit they have earned toward the settlement obligation. The report credited them $4.1 billion for principal reduction on primary mortgages, $5.4 billion in short sales or deeds in lieu of foreclosure, in which the homeowner is allowed to sell the house for less than it is worth or simply hand it over to the bank. It also credited $2.6 billion for allowing people who owed more on their mortgage than their home was worth to refinance at lower interest rates.
All told, the banks had earned $15.4 billion in credit toward the $19 billion total they must reach in the consumer relief part of the settlement. The rest of the $25 billion was made up of cash payments to states and individuals who had already lost their homes to foreclosure.
Debt reduction was a centerpiece of the agreement. The banks — Citigroup, Wells Fargo, Bank of America, JPMorgan Chase and former mortgage branches of Ally — were required to use debt reduction for 60 percent of their consumer relief. In this report, they were at 56 percent.
Since the period covered by the report, all of the banks have said that they have completed their financial obligations under the settlement, helping almost 650,000 borrowers as of June 30, with an average benefit of $80,000 per household. Federal officials had predicted that 1 million borrowers would see relief.
The banks frequently portray settlement-related activities as only a fraction of their broader efforts to modify troubled loans. “It’s important to note that the modifications, other consumer relief options and refinances for which the company has requested credit under the settlement represent slightly less than 2 percent of our total consumer relief and refinance activity since 2009,” said Vickee Adams, a spokeswoman for Wells Fargo Home Mortgage.
Under the settlement, short sales are worth only 20 to 45 cents on the dollar, compared with principal reduction, which earns from 55 cents to a dollar on the dollar.
But Smith said they were still a valuable form of relief. “Short sales benefit some distressed borrowers and play a significant role in improving our housing market. They allow people to get out of bad situations, move for a new job, or take other needed action that not being able to get out of the home would preclude.”
Kevin Whelan, the national campaign director for the Home Defenders League, an organization that is seeking a “just resolution to the foreclosure crisis,” said the new report did nothing to dispel his fears that the settlement was giving banks credit for measures they would have taken anyway, that the aid was not focused on low- or moderate-income families, and that it was not stabilizing communities. “What’s being counted as relief under this settlement has more families being put out of their homes,” he said.
The monitor, who tests random samples of loans to ensure that the settlement criteria are being met, has flagged several serious servicing issues, ranging from the banks’ failure to provide a single point of contact to lost paperwork and flawed financial calculations, but does not address individual cases. A final report on consumer relief will most likely be released early next year, and the monitor will continue to oversee the servicing requirements through early 2015.