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.

There were fewer foreclosure filings in January than there have been in any month since April 2007, as foreclosures dropped 28 percent from the same month a year ago, according to data from RealtyTrac. And while the drop was significant across the country, no state contributed more to the decline than California, where legislators last year passed a law that grants homeowners new rights in the foreclosure process.

The “Homeowners’ Bill of Rights,” signed by Gov. Jerry Brown (D) in July, took effect at the turn of the year. California has led the nation in foreclosures every month since 2007, but foreclosure filings dropped 62 percent in January, moving three states ahead of the Golden State. The decline is at least partially attributable to the homeowner protections contained in the new law, CNNMoney reports:

Regulations that took effect in California contributed to the dramatic decline. The state had long been recording the highest number of foreclosure filings of any state. But on January 1, a Homeowner Bill of Rights became law, offering more protections for California borrowers in default. As a result, new foreclosure filings in California fell 62% in January.

Under the new rules, mortgage servicers must halt all foreclosure proceedings once a borrower applies for a mortgage modification. Servicers will also face fines of up to $7,500 per loan if they record and file multiple unverified documents in foreclosure proceedings.

The Homeowner Bill of Rights makes foreclosure harder for banks by banning practices like dual-tracking, in which banks foreclose on homeowners even as they are seeking a loan modification, and robo-signing, the fraudulent approval of foreclosure documents widely utilized by banks immediately after the housing crash. The law also makes it easier for homeowners to deal with their banks and gives them legal recourse against lenders.

The new regulations, and fears that it would make foreclosing harder and more stringent for banks, led to a “bum rush” of foreclosures before the deadline, CNNMoney reported. But after it went went into affect, foreclosures dropped precipitously.

Other states, however, are trying to take the opposite approach, speeding up the foreclosure process instead of slowing it down and protecting homeowners. Lawmakers in Florida, which now leads the nation in foreclosures, introduced a bill to reduce the amount of time banks had to process foreclosure documents, a plan consumer advocates fear will make it more likely that banks will resort to the shoddy and sometimes fraudulent practices California banned.

One year ago tomorrow, the Department of Justice and 40 state attorneys general announced a $25 billion foreclosure fraud settlement with five of the nation’s biggest banks. The settlement was meant to provide substantial relief to homeowners who were improperly (or even illegally) foreclosed upon, and also help others on the brink of foreclosure.

However, the implementation of the settlement has been much more complicated. As the Campaign for a Fair Settlement noted in a statement today:

The National Mortgage Settlement was supposed to help people stay in their homes. But one year later we have yet to see a full accounting of how the money has been spent, states are diverting large portions of the funds to meet their deficits instead of helping homeowners, and the hardest hit — particularly communities of color — are not seeing relief. Short sales and dual tracking continue, and the banks themselves are spending more to move people out of their homes than to keep people in them. The bottom line: a settlement that promised justice and relief for homeowners has instead continued business as usual for mortgage servicers and financial institutions.

As Propublica detailed in this map and Enterprise Community Partners laid out in this report, states all across the country have siphoned off funds meant to aid homeowners and used them for a host of other non-housing related programs. Many states simply plunked the money into their general funds to plug budget gaps.

Several states, meanwhile, have attempted to end the more pernicious acts of mortgage servicers on their own. California approved a Homeowners’ Bill of Rights, for instance, while Minnesota Democrats are attempting to adopt many protections not offered at the federal level.

A Florida Republican this week reintroduced legislation to speed up the foreclosure process for the third consecutive year, even though similar legislation has sparked outrage from consumer advocates over the last two years.

State Rep. Kathleen Passidomo (R) is touting the new bill as a “more moderate” version of the legislation that has failed each of the previous two years, the Miami Herald reports. But while it includes some provisions proposed by homeowner advocates, it still reduces the the time banks have to process a foreclosure from five years to one, a problematic “fix” that could incentivize more fraudulent processing of foreclosure documents:

Passidomo’s bill aims to speed things up. It requires mortgage lenders to certify that they have the correct paperwork proving they have the right to foreclose. [...]

The measure includes a provision that consumer activists supported last year to limit banks’ ability to go after homeowners for additional debt after a foreclosure.

Banks currently have five years to pursue a so-called “deficiency judgment” against a homeowner. The bill reduces that time-period to one-year.

The average Florida foreclosure, the Herald notes, takes more than 600 days to process. But even though Florida has more foreclosures than most other states, that length is hardly atypical. Nationally, homeowners with mortgages worth less than $250,000 are in default for an average of 611 days before they enter foreclosure. Borrowers with mortgages worth $1 million average 792 days in default before foreclosure begins.

Banks’ past efforts to hasten the foreclosure process led to fraudulent techniques like robo-signing and the forgery of foreclosure documents, which led banks to foreclose on homes they didn’t own, on homes that shouldn’t have been in foreclosure, and on homeowners who were seeking to modify their mortgages. The new legislation would supposedly require banks to certify their paperwork, but banks have previously flouted or gamed such mandates.

Consumer advocates are already drawing attention to the bill. “Might be a good time to start contacting your Florida state representatives in the state House and Senate on this issue,” one activist wrote in an email to followers, the Herald reported. “The more Floridians who oppose this bill and the earlier they oppose it, the better.”

Our guest blogger is David Sanchez, a Special Assistant with the Center for American Progress Action Fund’s Economic and Housing Policy Teams.

New Jersey is facing a twin crisis of foreclosures and lack of affordable housing, but Gov. Chris Christie (R) recently vetoed two bills that would have brightened the outlook for New Jersey residents struggling to afford homes.

The first bill would have empowered New Jersey’s Housing Mortgage and Finance Agency to purchase foreclosed homes and transform them into affordable housing. In doing so, New Jersey would combat the crime and blight brought about by vacant homes, while also increasing housing opportunities for low- and moderate-income families.

The bill had support not only from housing advocates, but from a broad swatch of businesses. What’s more, it would have been implemented without requiring state appropriations.

The second bill would have improved New Jersey’s program to help unemployed or underemployed homeowners make their mortgage payments. This program, funded by a $300 million grant from the federal government’s Hardest Hit Fund program, has badly underperformed for years: according to the most recent statistics, the program has denied assistance to more than double the number of applicants it has helped, and it has spent less than one twentieth of the funds available (although changes have recently been announced that may improve the program). The bill would have mandated that the program respond to applicants and issue aid more quickly.

Christie’s decision to veto these bills is puzzling, to say the least, given the challenges facing New Jersey’s housing market and families. While the housing market is improving in most of the country, it’s getting worse in New Jersey. New Jersey’s percentage of homeowners who are not current on their mortgages increased the most of any state in 2012, and delinquencies remain especially elevated in areas affected by Hurricane Sandy.

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The Consumer Financial Protection Bureau rolled out new rules today to clean up the mortgage servicing industry, which has been at the root of several scandals, including the use of the now-infamous “robo-signers.” The new rules will provide important protections for homeowners, no longer leaving them subject to the most pernicious mortgage servicing practices. Here’s what the rules will do:

– End dual tracking. This practice involves banks starting foreclosure proceedings on a homeowner at the same time that the homeowner is being evaluated for a mortgage modification. The end result is many homeowners lose their homes when they think they are receiving a modification. Under the rule, “Servicers cannot start a foreclosure proceeding if a borrower has already submitted a complete application for a loan modification or other alternative to foreclosure, and that application is still pending review.”

– Force balance transparency. The new rules call for clearer monthly mortgage statements and more advance warnings of changes like interest rate hikes. Servicers must also “promptly” credit payments that homeowners make.

– Limit “forced place” insurance. “Forced place” insurance is the insurance that lenders purchase on behalf of borrowers if they think there has been a lapse in coverage. The policies are often far more expensive than standard home insurance, and servicers receive a cut of the payments. Abuse of forced place insurance became a big industry during and after the buildup of the housing bubble: “From 2006 to 2011, direct earned premiums for lender-placed insurance more than tripled, to $3.1 billion from $954 million.” As the New York Times noted, “the cost [of forced place insurance] more or less ensures foreclosure for a household on the brink; it can also hurt a borrower’s chances for a loan modification.” Under the new rules, servicers must warn borrowers that a forced place purchase will occur and “If servicers buy the insurance but receive evidence that it was not needed, they must terminate it within fifteen days and refund the premiums.”

However, the new rules do not create a single point of contact for borrowers (who often get the runaround at banks by being passed off between different bank employees). The California Homeowner’s Bill of Rights includes a mandatory point of contact, as does a new bill Minnesota Democrats are trying to enact. The rules will not be implemented for another year, leading one housing advocate to say that the CFPB is just “providing mortgage servicers advance notice to do their dirty work.”

Democrats in the Minnesota state legislature (officially members of the Democratic–Farmer–Labor party) are attempting to end one of the more pernicious practices that banks have employed in the aftermath of the housing bubble: “dual-tracking,” during which a lender simultaneously starts foreclosure proceedings on a borrower while assessing the borrower’s eligibility for a mortgage modification. A bill doing away with dual-tracking will be introduced at the state capitol today:

A trio of DFL lawmakers plans on Wednesday to unveil a foreclosure reform bill at the Capitol that would spare Minnesota homeowners some of the “unfair practices” that the representatives believe have become notorious.

“I wanted to do what I could to prevent it from happening again,” said first-term Rep. Mike Freiberg (DFL-Golden Valley), who is introducing the bill in his first week on the job.

Freiberg says he was inspired by a constituent who is fighting to win her home back from foreclosure.

“She was the victim of some difficult, unfair practices,” Freiberg said in an interview Tuesday.

As economic policy and law expert Peter Swire wrote, “the dual-track problem symbolizes why our foreclosure mess is so fundamentally unfair to too many families. Mortgage servicing companies (and the lenders and investors they work for to collect monthly mortgage payments) collect the documents needed to consider modifying the mortgages of many responsible but overburdened families, but then swoop in nonetheless to take the home away.” The Minnesota bill is supported by several community groups and Occupy Our Homes MN. The Occupy Our Homes movement has been integral in preventing unfair foreclosures around the country.

In addition to doing away with dual-tracking, the bill provides other key protections for homeowners, including ensuring that they have a single point-of-contact with their lender and requiring that the lender participate in mortgage mediation (a great system for preventing foreclosures) if the homeowners desires. California codified many of these protections in its Homeowners’ Bill of Rights last year.

Federal regulators yesterday announced an $8.5 billion settlement with 10 of the nation’s biggest banks over various foreclosure abuses. According to the Office of the Comptroller of the Currency, “The sum includes $3.3 billion in direct payments to eligible borrowers and $5.2 billion in other assistance, such as loan modifications and forgiveness of deficiency judgments.”

This settlement — which comes in addition to the $25 billion foreclosure fraud settlement crafted last year — is meant to provide redress to homeowners who had to deal with “independent” foreclosure reviews that were not so independent. But Rep. Elijah Cummings (D-MD), for one, believes that the settlement gives banks a pass on their contemptible behavior:

“I have serious concerns that this settlement may allow banks to skirt what they owe and sweep past abuses under the rug without determining the full harm borrowers have suffered,” said Rep. Elijah E. Cummings, D.- Md., a member of the House Committee on Oversight and Government Reform and a vocal critical of the government regulators handling of the mortgage crisis.

Other housing and fair lending advocates agree. “For many people this will be the end of the line,” said Diane Thompson, an attorney with the National Consumer Law Center. “This is a much lower number for the banks compared to what they were at risk for.” “The regulators have decided to replace the fox in the henhouse with the wolf,” added John Taylor, president of the National Community Reinvestment Coalition.

“We commend regulators for their ongoing efforts to hold financial institutions accountable for misdeeds during the foreclosure crisis, but the payments in this settlement represent a mere fraction of the total harm inflicted on borrowers and communities,” said Julia Gordon, Director of Housing Finance and Policy at the Center for American Progress. The last foreclosure settlement was gamed by the banks, who counted aid they were providing anyway towards their settlement total.

In 2010, the nation’s biggest banks were caught systematically forging foreclosure documents in order to speed the foreclosure process along and unlawfully oust homeowners. The resulting scandal led to a $25 billion settlement between the federal government, state attorneys general, and the five biggest banks.

Nevada — arguably the epicenter of the foreclosure crisis — enacted a law (signed by its Republican governor) that forces banks to prove ownership of a home before a foreclosure, punishable with criminal penalties. Now, the state’s banks want to roll back that requirement:

Foreclosures in Nevada could spike next year if lawmakers and banks roll back a bill passed in 2011 that played a large role in stymieing banks’ attempts to retake homes from Nevadans, according to the state’s banking association president and housing analysts. [...]

At issue is Assembly Bill 284, a measure passed by the Nevada Legislature in 2011 and signed by Republican Gov. Brian Sandoval that forces banks to prove they have the legal right to foreclose on a particular home before they take action. Most important, the law requires bank workers to sign an affidavit that they have personal knowledge of a property’s document history, or they will face criminal or civil penalties.

One Democratic state senator responded to the proposal by saying “if banks can’t foreclose, it’s their own fault for losing track of the paperwork.” “If it comes down to a homeowner who had a mortgage, or a bank — who has the right to be there? I’ll go with the homeowner,” said State Sen. Tick Segerblom. “I’m not worried about the banks. They made their beds. They can sleep in it.”

At the federal level, big banks have been gaming the foreclosure fraud settlement, while many states have siphoned off settlement funds meant to aid homeowners to use for other purposes.