Just 83,000 Homeowners Get First-Lien Principal Reductions from National Mortgage Settlement, 90 Percent Less Than Promised
Posted on March 19, 2014 by
Yesterday, the National Mortgage Settlement monitor, Joseph Smith, released his final crediting reports, confirming that all five banks (Wells Fargo, Bank of America, Citi, JPMorgan Chase and Ally, now known after bankruptcy as Residential Capital, or ResCap) have now satisfied the consumer relief portion of the foreclosure fraud settlement. The banks were required to spend $20 billion in “credited” relief (some actions received less than a dollar-for-dollar credit). Smith exults that the gross relief provided totaled over $50 billion, and that “more than 600,000 families received some form of relief.”
What the mainstream media reports on this don’t tell you is that the $50 billion number is wildly inflated: for example, it includes $12 billion worth of deficiency waivers in non-recourse states, which the IRS confirmed have no value whatsoever. But I didn’t know just how inflated these numbers were, and how empty the promises, until I went through them all.
HUD Secretary Shaun Donovan did make a prediction about how many homeowners would get relief under the settlement, so we have a benchmark. He used it over and over in the PR push to get it inked. The number? 1 million.
About one million American homeowners would get writedowns in the size of their mortgages under a proposed deal with banks over shady foreclosure practices, Housing and Urban Development Secretary Shaun Donovan said on Wednesday […]
“We’re very close to a settlement that would both fix the servicing problems, but also help over a million families around the country stay in their homes and get help,” Donovan said at a U.S. Conference of Mayors meeting in Washington.
Even at the time this seemed ludicrous; a study from the Brookings Institution showed that only 500,000 would be eligible for principal reductions, given the constraints of the settlement (no Fannie/Freddie loans, for example). But it played out even worse than these fears.
The total borrowers helped with “some form of relief,” Joseph Smith reported, was 600,000, a little over half of Donovan’s promise. But Donovan specifically said that 1 million would receiveprincipal reductions. The 600,000 includes borrower transitional funds (as in, “you have to leave your home, here’s $1,000″), short sales, deed-in-lieu foreclosures, deficiency waivers, forbearance measures, anti-blight actions, and refinancing). Moreover, it includes second-lien principal reductions, which in a large majority of cases, almost all of them, are worthless and unsalvageable. So you have to separate the wheat from the chaff to figure out just how many homeowners got first-lien principal reductions that helped them “stay in their homes.”
Frustratingly and probably by design, the crediting reports do not break down those numbers; you have to go into the individual court reports for each bank. The numbers are further cut up in fairly odd ways – there are different types of first-lien mortgage modifications listed, including “Principal Forgiveness,” “Forbearance Forgiveness” (well which is it, forbearance or forgiveness?), “Federal Program Forgiveness,” “Conditional Forgiveness” and “180 Days Past Due with Forgiveness.” I’m going to be nice and keep in everything but the “conditional” forgiveness, which is after all conditional, and the 180 DPD, which is forgiveness on a loan that appears unrecoverable. So with that in mind, here are the numbers for first-lien principal forgiveness for each bank (I’ve linked to the court report so you can check this yourself):
Bank of America: 30,609
JPMorgan Chase: 18,114
Wells Fargo: 23,248
Ally/ResCap: This one is harder to figure, because the court report does not break down the numbers at all. The summary shows that ResCap devoted about $130 million to principal reduction. Assuming an average $100,000 principal reduction each, which was roughly the standard, you get about 1,300 borrowers.
Total all of those up, and you’re left with a grand total of 83,567 first-lien principal reductions from the settlement. That means that Donovan over-promised by about 90% when he said that 1 million borrowers would get principal reductions.