Banks make progress on mortgage settlement

A year has passed since state and federal authorities reached a $25 billion settlement with five of the nation’s largest banks over fraudulent foreclosure practices that were commonplace after the housing bust.

On Thursday, the court-
appointed monitor of the settlement issued a report showing that more than half a million homeowners have received about $46 billion worth of loan modifications, short sales, refinancings and forbearance. The activity spans from March through December and was self-reported by the banks involved in the agreement: Wells Fargo, Bank of America, JPMorgan Chase, Ally Financial and Citigroup.

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“The servicing settlement has contributed to a recovery in our housing market and has already exceeded our expectations,” said Shaun Donovan, secretary of the Department of Housing and Urban Development, during a call with reporters. He noted that authorities initially anticipated about $34 billion in assistance but now expect consumer relief to exceed $50 billion.

The news arrives as the housing industry is reporting a sharp decline in seriously delinquent residential mortgages. Home loans that were 90 days or more past due fell to 7 percent in the fourth quarter, the lowest level since 2008, according to the Mortgage Bankers Association. Struggling homeowners are catching up on payments or benefiting from alternatives to foreclosure as the economy improves.

According to the settlement report, short sales accounted for roughly 42 percent, or $20 billion, of the total relief the banks have extended to consumers. Loan modifications took up the second-largest portion of the funds, with about 241,149 borrowers receiving $18 billion in assistance.

Although consumer groups praise this progress, many are disappointed that so much of the aid has come in the form of short sales.

“It’s shameful,” said Kathleen Day, a spokeswoman for the Center for Responsible Lending. “A short sale is a kissing cousin to a foreclosure; it depresses property values and kicks people out of their homes. Haven’t the banks done enough damage?”

Proponents of the settlement process, however, point out that the aggregate amount of money spent on all the other relief efforts, including forbearance and modifications, outweigh the amount spent on short sales. What’s more, the $11 billion in principal reductions far exceeds the $5.1 billion required under the agreement, said Iowa Attorney General Tom Miller, a key player in the settlement talks.

“A lot of homeowners are benefiting in many ways,” he said. Miller stressed that short sales are still a better alternative to foreclosure because “the homeowner doesn’t have the liability going forward, investors can get more money . . . and the housing market is stabilized.”

The settlement was the culmination of more than 16 months of negotiations between lenders and a cadre of 49 state attorneys general and several federal agencies. It arose from allegations that lenders used forged and shoddy paperwork to quickly foreclose on struggling homeowners, a practice known as “robo-signing.”