Major banks provided over $10 billion in mortgage relief to consumers in recent months as part of a $25 billion settlement over foreclosure abuses, the monitor of the settlement reported today.

Some 138,000 mortgage borrowers had obtained an average of $76,600 in mortgage relief apiece under the settlement as of June 30, according to the report, for a total of $10.56 billion in relief. Consumer relief included loan modifications, mortgage refinancing, deficiency waivers, short sale facilitation and other measures.

Half of $20 billion settlement

The total would represent more than half of the $20 billion in consumer relief the nation's five largest mortgage servicers agreed to provide to distressed borrowers under the National Mortgage Settlement, but it's not yet clear how much of those funds will be credited to them, according to the settlement monitor, former North Carolina state banking commissioner Joseph A. Smith.

The $10.56 billion figure is based on data provided to the settlement monitor and have not been independently verified or evaluated, according to Smith's Office of Mortgage Settlement Oversight, which issued the report.

Bulk of relief in short sales

The major portion of the relief banks said they provided in writing down loan balances to allow short sales or deed in lieu transactions, thereby freeing borrowers of their mortgage obligation short of foreclosure. The five banks said they wrote off a total of $8.67 billion in this manner, with some 75,000 borrowers surrendering their homes in return for an average of $116,000 in debt relief apiece.

The banks also reported that in partial satisfaction of the settlement, some 7,100 borrowers completed first lien mortgage loan modifications and were granted a total of $750 million in loan principal forgiveness, an average of nearly $106,000 each. The banks also sought credit for another $350 million in loan forgiveness granted to some 5,500 borrowers prior to the settlement being finalized, for an average of more than $63,000 apiece.

Another $231 million in relief was granted in the form of extinguishing second liens for some 4,200 borrowers, at an average of $55,000 each. Servicers also refinanced some 22,000 mortgages with a total unpaid balance of $4.9 billion, reducing interest rates by an average of 2.1 percentage points for an average monthly savings of $388, for a total of $102 million the banks are seeking to have credited toward the settlement.

About the settlement

The five mortgage servicers - Bank of America, CitiMortgage/Citi, Ally Financial/GMAC, JP Morgan Chase and Wells Fargo - reached the agreement on April 5 with federal agencies and the offices of 49 state attorneys general, with the former including the Justice Department, Treasury Department, HUD, Consumer Financial Protection Agency and others.

The settlement resolves charges that the mortgage servicers engaged in a variety of improper foreclosure practices, including cutting legal corners in filing foreclosure claims (robosigning) and continuing to pursue foreclosures while borrowers were in the process of seeking loan modifications, among other charges.

Lenders have three years to carry out the terms of the agreement, for which they will receive additional financial credit for consumer relief provided during the first 12 months. In addition to $20 billion in consumer relief, the settlement also calls for the five banks to provide $5 billion in direct restitution to state and federal agencies.

Published on July 22, 2010