The top five mortgage servicers have doled out $21.9 billion in consumer relief to more than 300,000 borrowers under the national mortgage settlement, and the independent monitor says there is a "reasonably good chance" that some of the servicers will have met the conditions of the deal by early next year.

But Joseph A. Smith, the former North Carolina banking commissioner who is monitoring the $25 billion settlement agreement, cautioned Monday that numbers submitted by the banks still have to be reviewed by his office and could change. Specifically, short sales — which so far make up the bulk of the relief effort — carry more weight in some states than others and Smith says the numbers reported do not take that into account.

"I'm still in the trust and verify mode," Smith said in an interview with American Banker.

The settlement signed in March with 49 state attorneys general and federal regulators was designed to address servicing abuses that led to the robo-signing of foreclosure documents. It requires the five largest servicers — Bank of America (BAC), Citigroup (NYSE: C), JPMorgan Chase (JPM), Wells Fargo (WFC) and Ally Financial — to provide a minimum of $17 billion in direct consumer relief and $3 billion in refinancings of underwater borrowers. The remaining $5 billion came in the form of direct payments to the regulators.

Apart from the $21.9 billion of relief provided so far, banks have also offered $4.2 billion in trial modifications that borrowers have not yet completed, the report found. Servicers do not get credit toward principal reductions until the borrowers have completed a 90-day trial period.

Last week, B of A said it expects to meet its terms of the settlement the end of February — two years ahead of the required deadline — and JPMorgan Chase said it has already fulfilled its obligations in the hard-hit states of Florida and California.

While Smith said he is "encouraged" by servicers' progress, he says they will not get credit under the settlement for principal forgiveness in short sales in 12 nonrecourse states, including California and Arizona, where borrowers cannot be personally held liable for the loss. A chief criticism of the settlement has been that banks would get credit for completing billions of dollars in short sales, essentially kicking borrowers out of their homes, rather than providing aid that helps borrowers avoid foreclosures.

"We will take steps to assure that principal forgiveness credit will only be given where it creates a benefit for the consumer," he says. "Servicers don't get credit for doing stuff where there's no benefit to the consumer."

Because of the complicated nature of the settlement, servicers are incentivized to get credit depending on the type of consumer relief offered — but the total dollar amount does not actually match servicers' total obligation. For example, servicers get $1 dollar in credit for each $1 of principal forgiveness, but only 45 cents of credit for each $1 in principal forgiven in a short sale, and only 20 cents of if the loan is owned by an investor.

All told, the servicers waived a combined $13.1 billion in unpaid principal for short sales and forgave $2.6 billion in principal for first liens and $2.8 billion for second liens from March 1 through September 30, the monitor's second report found. A preliminary report in August showed that $8.7 billion in relief came in the form of short sales from March through June.

Consumer advocates say another flaw in the settlement is that there's no way to measure how much relief is going to minority and low-income borrowers.

"Part of the point of the settlement was to show that principal reductions work and actually help a banks' bottom line," says Mark Ladov, a lawyer at the Brennan Center for Social Justice at New York University. "We still need more transparency to get a complete picture of where the money is going and which borrowers are getting principal reductions."

Consumer groups have urged Smith to add data on race, ethnicity and geography. But the monitor is limited from doing so by the language of the settlement which allows him to add three new metrics to the 29 that already apply to servicers but they have to involve policies and procedures not outcomes regarding discrimination.

"I'm going to try to do something about it because they issue [consumer advocates have] raised is a real one," Smith says. "But there's not enough here [in the settlement] to solve all the problems we've got in the mortgage market."

He said his primary job was "to justify public trust and confidence in the settlement."

In the breakdown of total dollar relief, so far B of A has offered $8.6 billion to borrowers through Sept. 30, tops among the five servicers. Wells was next, at $4.3 billion, followed by JPMorgan Chase ($4.2 billion), Citi ($1.8 billion) and Ally ($200 million). Servicers are obligated to provide 60% of the settlement in first and second-lien principal reductions.

The servicers have an internal review group made of employees and internal contractors who will determine when the work is completed. Then Smith and BDO Consulting, the contractor chosen in June to aid in the settlement, will review and verify the self-monitoring work of the servicers. If Smith determines the work has been completed, he will issue a certification of satisfaction.

Consumers have filed 3,000 complaints since May and 70% involved problems with loan modifications or a failure to modify or refinance a loan.

The servicers have two years to meet 75% of their goals that give them credits toward the settlement. They have another year after that to complete the remaining 25%.

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