The progress report released under the foreclosure settlement
deal shows that 5 mortgage servicers involved in it remain on
track to fulfill the commitments by Mar 1. The servicers -
Bank of America Corporation
JPMorgan Chase & Co.
Wells Fargo & Company
) and Ally Financial Inc. - provided $45.83 billion in relief
during the period from Mar 1, 2012 to Dec 31, 2012. This has
served an average of $82,668 to about 554,389 borrowers.
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Out of the total $45.83 billion, the maximum relief of $19.51
billion was provided via short sale (vending of homes by owners
for a value lesser than the mortgage amount). Here, BofA led the
way with $11.8 billion of short sales, followed by JPMorgan with
about $5.3 billion.
Further, the first lien modification was completed for 70,810
borrowers, receiving $7.41 billion in loan principal reduction,
averaging at about $$104,626 per borrower. In addition, second
lien modifications and extinguishments were given to 170,339
borrowers, representing nearly $11.60 billion in relief. Hence, a
total of $19.01 billion worth of principal reductions (both first
and second lien) was done by the mortgage servicers.
Moreover, as of Dec 31, 2012, another 25,114 borrowers were in
active first lien trial modifications with the aggregate
principal value of $3.49 billion. If the trials are successful,
this would represent average potential relief of $138,802. The
servicers also provided another $2.21 billion in relief via
refinancing 56,400 home loans with an average unpaid principal
balance of $211,834.
Hence, taking into consideration the various types of relief
extended (excludes relief in process) by the banks, BofA tops the
chart with $26.8 billion in aid, followed by JPMorgan with $7.7
billion, Wells Fargo with $4.2 billion, Citigroup with $2.8
billion and Ally Financial with $624 million. Though the amount
totals approximately $42.1 billion, the mortgage servicers (with
an exception of Ally Financial) are yet to achieve the goal as
settlement provides limited credit for a certain category of
Under the terms of the foreclosure deal, the servicers receive 45
cents credit for every dollar of relief provided. The servicers
will have to furnish approximately $20 billion in relief to
homeowners on the verge of eviction over a period of 3 years.
Also, they will be required to lower loan balances for struggling
borrowers and refinance the loans for customers with homes worth
less than the value of their mortgages.
Though the settlement deal came as a big relief for the banks,
they are required to meet the targeted commitments or pay
penalties instead. If banks fail to meet the targeted
modification commitments over a period of 3 years, they could
face penalties of 125%-140% of the deficit. Further, they are
required to finish 75% of the commitments by the end of 2014 and
the remaining over the next 12 months.
However, the foreclosure deal covers only a small proportion of
underwater mortgages (nearly 11 million homes) as it is expected
to provide aid to just 1 million of these. Yet, we believe that
the housing sector is going to benefit from the deal as lower
unemployment rates are likely to help homeowners avoid
foreclosures in the near term. Also, the servicers will be
benefited as it will facilitate the improvement of balance