The Office of Mortgage Settlement Oversight has released their initial assessment of the foreclosure fraud settlement. And what they’re finding is that banks are “paying off” their portion of the settlement by engaging in short sales with their borrowers. Which is something they were already doing in greater numbers prior to the settlement.
The report covers the time period from March 1 to June 30, and looks at the settlement in terms of gross dollars. In other words, some of the formulas for “credits” that banks get for various mortgage relief and other activities give less than a dollar-for-dollar payout. So the figures in the report refer to just the amount of relief, not how much credit the banks will get for it.
With that in mind, here is the breakdown of what the Office of Mortgage Settlement Oversight describes as $10.561 billion in consumer relief:
Completed First Lien Modification Forgiveness $749.36M
Completed Forgiveness of pre-3/1/12 Forbearance $348.94M
Completed Second Lien Modifications and Extinguishments $231.42M
Short Sales Completed $8.669B
Total Other Program Activity $458.75M
Refinance Consumer Relief $102.78M
The short sales number sticks out like a sore thumb. All the other amounts are trivial; there has been almost as much “other program activity,” and that includes anti-blight programs like bulldozing homes, donating homes and waiving deficiency judgments, as there has been first-lien modification forgiveness. But on short sales there has been real progress.
The problem is that there already was real progress on short sales before the settlement, and it would have continued without it. With all of the continued difficulties with processing foreclosures, banks don’t want to take the homes. In addition, there is high demand for distressed properties from institutional investors. So banks are happy to engage in short sales, where they accept a sale for a home for a smaller price than what is owed on the mortgage, and forgive the balance. Short sales increased by 25% year-over-year in the first quarter of 2012, according to RealtyTrac. That mostly predates the foreclosure fraud settlement. Fannie and Freddie just inaugurated a program facilitating short sales that has nothing to do with the settlement.
In other words, the idea of banks granting short sales as a punishment for defrauding consumers and state courts is ridiculous. They’re all too happy to get a higher price for a short sale than they would get in foreclosure, with the added benefit of never having to take the foreclosed home and maintain it. And as I said, they were already doing this before the settlement ever happened. This was written the day the settlement was announced, on February 9, 2012.
Banks are already forgiving leftover balances from short sales. This is nothing new – they are just getting credit for something they are already doing. I suppose, technically, this is one way of reducing the total mortgage balance owed… but this is very different from reducing balances so people can actually keep their homes. This is not how this program was sold to we citizens.
We gave away legal immunity for nothing.
Precisely. Especially because, like in a foreclosure, the story ends with the borrower out of the home.
Moreover, counting this as “Over $10 billion in loan aid,” as some headlines do, makes the mistake of not reading the fine print of the settlement. Just by reading this FAQ on the settlement, you see that short sales are in a bucket with forbearance, bulldozing and donating homes, and the like, and that ONLY $7 billion of the penalty can be satisfied this way. On principal reduction, which was supposed to be the purpose of the settlement, banks have not even accomplished $1 billion yet ($749 million in first-lien, $231 million in second-lien reductions). And in the case of Bank of America, that number is actually $0.
Bank of America Corp hasn’t completed any first-mortgage modifications that reduce loan balances for borrowers so far under a $25 billion settlement reached this year, the official monitoring the agreement said Wednesday.
Bank of America did manage to complete $4.8 billion in short sales, WHICH THEY WERE ALREADY DOING.
I’ll have more on the settlement report as I wade through it. But these early numbers show the whole thing to be a complete tragedy.
UPDATE: If you combine the short sales with the “other program activity,” you find that around 90% of the consumer relief so far granted in the settlement comes from things the banks were doing already. You cannot possibly describe this as a punishment.