The five largest U.S. mortgage servicers say they have provided about $10.6 billion in relief to troubled borrowers under the terms of a $25 billion legal settlement over abusive foreclosure practices, according to a report released today by a court-appointed monitor.
Most of that aid, $8.7 billion, came in the form of short sales, according to the Office of Mortgage Settlement Oversight. Lenders including JPMorgan Chase & Co. (JPM), Wells Fargo & Co. (WFC), also forgave $749.4 million in mortgage debt.
"There's some evidence from this report that the banks are beginning to do some significant work on consumer relief," Joseph A. Smith Jr., the settlement monitor, said in a telephone interview. "I'm not declaring victory, but I do think we've made a solid start."
The report, a preliminary estimate of banks' efforts through the end of June, is not a formal assessment of their progress toward meeting their obligation under the settlement. The pact requires them to spend $20 billion on borrower relief and an additional $5 billion in payments to states and the federal government.
Banks told the settlement monitor that they had aided a total of 137,846 borrowers. Their efforts varied widely: Bank of America Corp. reported that it hadn't done any loan modifications or refinancings under the terms of the settlement by June 30. Meanwhile, JPMorgan reported spending $428 million to reduce the outstanding principal on loans.
Bank of America, obligated to pay about $8.6 billion overall for borrower relief, reported spending $4.8 billion on short sales. JPMorgan, whose obligation under the settlement totals about $4.2 billion, spent $2.4 billion on short sales.
Those reports are preliminary. Smith's office will scrutinize the aid the banks say they have provided and apply formulas outlined in the settlement to determine how much credit they have earned toward their total obligations.
"It's early days, but I am satisfied that we're prepared to do a proper job," he said.
The settlement agreement, filed in federal court in Washington in February, was reached after attorneys general from all 50 states announced a probe into foreclosure practices following disclosures that banks were using faulty documents to seize homes.
The banks, also including Citigroup Inc. (C) and Ally Financial Inc. (ALLY) negotiated the agreement with federal agencies, including the Justice Department, and 49 states.
Illinois Attorney General Lisa Madigan said in an e-mailed statement that she is "cautiously encouraged" by the report.
"I will continue to monitor the banks' efforts to fulfill their obligations under this settlement, as my office continues its work to hold banks and other financial institutions accountable for the destruction they've caused in our communities," Madigan said.
About $17 billion of the agreement will pay for mortgage debt forgiveness, forbearance, short sales and other assistance to homeowners. Servicers will also provide $3 billion in refinancing to lower homeowners' interest rates. The settlement also sets new standards for servicing loans aimed at preventing foreclosure abuses.
