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Banks complete obligations under huge mortgage settlement, but many consumers didn’t receive help

Foreclosure SignWhile the monitor for the settlement with mortgage providers issued a report Tuesday saying the banks have satisfied their consumer relief and refinancing obligations required by the National Mortgage Settlement, many consumers weren’t helped or received little assistance.

Consumer advocates critical of the settlement said several million consumers who received a foreclosure notice during the past five years likely wouldn’t receive any money.

"The settlements are unlikely to provide meaningful relief to any significant fraction of any of the homeowners it sets out to help," Diane Thompson, a foreclosure lawyer at the National Consumer Law Center, said in a Huffington Post article.

For consumers who received payments, they averaged $1,480.

Five large banks – Bank of America, JPMorgan Chase, Wells Fargo, Citigroup, and Ally Financial – provided more than $50 billion in relief, with $20 billion in relief for consumers under the settlement, said Joseph A. Smith, settlement monitor. Smith said more than 600,000 families received some form of relief.

The largest share of consumer relief – 37 percent – was for first lien principal forgiveness, Smith said. Short sales and deeds in lieu of foreclosure made up 31 percent of credit relief, followed by 17 percent for refinancing assistance and 15 percent for second lien forgiveness.

In one analysis of the settlement, David Dayen, writing for the website Naked Capitalism, said although Housing and Urban Development Secretary Shaun Donovan predicted 1 million homeowners would be helped, only about 84,000 received meaningful assistance. 

Dayen said an example is Bank of America. Of the 317,028 homes given “relief,” nearly half of them, 141,539, were for second-lien modifications, and another 122,384 were for short sales and borrower transition assistance.

“Less than 10 percent of the borrowers ‘helped’ were given first-lien principal reductions,” Dayen said. “In other words, to pay a penalty for misconduct, Bank of America mostly did what it would have normally done anyway in its course of business, facilitating short sales and extinguishing worthless second liens. Only this time, they got credit for those routine activities, to rid themselves of their penalty.”

Smith said relief payments made up only a portion of the settlement, which occurred due to allegations that lenders used forged and shoddy paperwork to quickly foreclose on struggling homeowners, a practice known as “robo-signing.” He said he will continue to monitor how banks service their mortgages, with additional reports on their activities.

Recently, the Consumer Financial Protection Bureau issued rules on mortgage servicing problems. However, some consumer groups say unacceptable practices continue to be used.

Some of the 49 attorneys general involved in negotiating the mortgage settlement have accused the banks of violating the servicing standards. New York Attorney General Eric T. Schneiderman filed a lawsuit in October against Wells Fargo charging the company with not taking the steps necessary to help troubled homeowners apply for modifications to their existing mortgages.

To settle the mortgage fraud charges against the five banks, JPMorgan paid $11 billion, Wells Fargo $7.9 billion, and Citigroup $3.4 billion. Ally, the fifth mortgage servicer named in the settlement, provided $554 million.

Copyright 2014, Rita R. Robison, Consumer Specialist

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