A Robo-Signing Settlement Update

Remember the ‘robo-signing’ scandal from the fall of 2010? That was when it was discovered that many big banks were processing foreclosures without verifying they had all the proper documentation. The revelation caused a halt to many foreclosures for a few months as banks like Wells Fargo, JPMorgan Chase, Citigroup and Bank of America tried to sort out their problems. The wrongs were righted with the $25 billion National Mortgage Settlement from February of this year. Here’s a look at how the settlement is playing out.

Under the terms of the agreement between big banks and the state attorney generals, lenders committed to making ‘consumer relief’ in any of the following ways:
• First and second lien modifications
• Enhanced borrower transitional funds
• Facilitation of short sales
• Deficiency waivers
• Forbearance for unemployed borrowers
• Anti-blight activities
• Benefits for members of the armed services
• Refinancing programs

In the latest report from Joseph A. Smith, the settlement’s Monitor, it looks like most of the banks are using a good chunk of their committed funds to forgive debts in short sales, when banks allow struggling homeowners to sell their homes for less than the mortgage owed. Of the $26 billion that has been paid out by banks since March, 49 percent has been used to waive the balances on short sales. More specifically, banks have facilitated 113,534 short sales with an average balance forgiveness of $115,672 per borrower. All together banks shelled out about $13 billion towards short sales.

Other efforts included principal write-downs on first mortgages, with banks paying about $2.55 billion in balance forgiveness on those modified loans. Banks also modified second mortgages, and helped some borrowers refinance into better loans.

So while only about half of the current efforts are helping people to actually stay in their homes, the Settlement monitor is optimistic about the goals being met.

“The Settlement is a bipartisan, state-federal response to a serious problem that has the potential to change our country’s mortgage system for the better,” Smith concluded in his report. “While it is still too soon to judge the extent of the effectiveness of the settlement, I believe the past eight months of our work have been well spent.”

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