The banks involved in last year’s foreclosure abuse settlement are spending more money to get bad loans off of their books than they are on directly reducing the amount homeowners owe on their mortgages, according to a new report from the settlement’s overseer released Thursday.
Five large banks reached a $25 billion settlement with the federal government and state attorneys general in 2012, and though their efforts to help homeowners improved at the end of 2012, much of the money they have spent has been aimed at short sales that help homeowners get away from underwater mortgages but also help the banks get bad loans off their books, Bloomberg reports:
Bank of America Corp., JPMorgan Chase & Co. (JPM), and three other banks in last year’s $25 billion foreclosure-abuse settlement spent $19.5 billion through the end of 2012 approving so-called short sales that let homeowners sell for less than they owe on their mortgages, Joseph Smith, the settlement’s monitor, said today. By comparison, the banks spent $6 billion reducing borrowers’ principal to help them stay in their homes, an increase from $2.6 billion at the end of the third quarter.
While the banks are stepping up efforts to help borrowers stay in their homes, they are still spending most of the settlement on short sales and forgiveness of home-equity loans that allow them to take bad loans off their books. Profits from new lending are increasing even as regulators enforce penalties for modification missteps and foreclosures pursued with fraudulent or missing documents. Last year, mortgage revenue at the four largest lenders — Bank of America, JPMorgan, Wells Fargo & Co. (WFC), and U.S. Bancorp –surpassed the amount they spent on consumer settlements and investor demands they buy back faulty loans.
The five banks have spent a total of $45.8 billion as part of the settlement, according to the report from Joseph Smith, the settlement’s monitor. Because they do not receive dollar-for-dollar credit for money spent, they have not yet fulfilled terms of the settlement, which required them to provide $20 billion in mortgage relief. Only Ally Financial has completed its obligation.
Focusing on short sales isn’t a recent development under terms of the mortgage settlement, which has been riddled with problems over the last year. States diverted much of the money they received under the settlement to closing budget gaps, and many homeowners — particularly those hardest hit by the housing crisis — have yet to see relief. Because of the reliance on short sales, banks are “spending more to move people out of their homes than to keep people in them,” the Campaign for a Fair Settlement said in a statement earlier this month.