The progress report released under the National Mortgage
Servicing (NSM) settlement shows continued progress being made by
the five largest mortgage servicers -
Bank of America Corporation
JPMorgan Chase & Co.
Wells Fargo & Company
) and Ally Financial Inc. According to the report, the servicers
provided $26.11 billion in relief during the period from March 1
to September 30. This has served an average of $84,385 to about
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Out of the total $26.11 billion, the maximum relief - $13.11
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 $7.4 billion of short sales, followed by JPMorgan with
about $4 billion.
Further, the first lien modification was completed for 21,833
borrowers, receiving $2.55 billion in loan principal reduction,
averaging at about $116,929 per borrower. In addition, second
lien modifications and extinguishments were given to 50,025
borrowers, representing nearly $2.78 billion in relief. Apart
from these, the lenders had completed loan reductions of
approximately $1 billion before March 1.
Hence, a total of $6.33 billion worth of principal reductions
(both first and second lien) was done by the mortgage servicers.
BofA provided $3.65 billion; JPMorgan $1.3 billion; Wells Fargo
$608.8 million; Citigroup $551.3 million and Ally $195.1 million.
Moreover, as of September 30, 2012, another 30,967 borrowers were
in active first lien trial modifications with the aggregate
principal value of $4.19 billion. If the trials are successful,
this would represent average potential relief of $135,223. The
servicers also provided another $1.4 billion in relief via
refinancing 37,396 home loans with an average principal balance
Hence, taking into consideration the various types of relief
extended (excludes relief in process) by the banks, BofA tops the
list with $11.8 billion in aid, followed by JPMorgan with $6
billion, Wells Fargo with $2.5 billion, Citigroup with $1.1
billion and Ally Financial with $587.8 million. Though the amount
totals approximately $22 billion, the mortgage servicers have not
yet achieved their goals as settlement provides limited credit
for a certain category of assistance.
The servicers do not get full credit for every dollar of relief
they provide. Under the NSM settlement signed early this year,
the five servicers will have to furnish roughly $20 billion in
relief to homeowners on the verge of eviction over a period of
three years. Moreover, they will be required to lower loan
balances for struggling borrowers and refinance the loans for
customers whose homes are worth less than the value of their
Though the settlement deal came as a big relief for the banks,
they are required to meet the targeted commitments or pay fines
instead. If banks are not able to meet the targeted modification
commitments over a period of three years, they could face
penalties of 125-140% of the deficit. These banks are required to
complete 75% of the commitments by the end of 2014 and the
remaining in the next 12 months.
However, the NSM deal only covers a tiny proportion of underwater
mortgages (nearly 11 million homes) as it is expected to provide
aid to only 1 million of these. Yet, we believe that the housing
sector is going to benefit from the NSM settlement as low
unemployment rates are likely to aid homeowners to shun
foreclosures in the near term. Also, the servicers will be
benefited as they will be able to improve their balance sheet.