Banks modify home loans, reduce rates for 300,000

  @CNNMoney November 19, 2012: 2:22 PM ET
Mortgage House Money

Under the terms of the foreclosure abuse settlement, lenders are steeply reducing mortgage debt for some homeowners.

NEW YORK (CNNMoney)

More than 300,000 homeowners have received $26 billion in relief under the big foreclosure abuse settlement reached earlier this year, according to a government report released Monday.

Five of the country's largest mortgage lenders have modified home loans, reduced interest rates or forgiven debt as part of a deal with attorneys general from 49 states and the District of Columbia and the federal government.

The banks involved are Bank of America (BAC, Fortune 500), JPMorgan Chase (JPM, Fortune 500), Wells Fargo (BWF), Citibank (C, Fortune 500) and Ally Financial (ALLYPRB).

The settlement, reached in February, resolved allegations that banks used faulty paperwork to seize homes. Among the worst abuses were robo-signers who signed thousands of legal documents attesting to facts they had no knowledge of.

Related: 10 most affordable cities for homebuying

The report was released by the Office of Mortgage Settlement Oversight, a watchdog agency set up by the settlement. The report is considered preliminary because the agency has not vetted the data provided by the banks; the agency will release an audited report in mid-2013.

"The relief the banks have reported is encouraging," said Joseph A. Smith Jr., the monitor of the mortgage settlement. "But it is important to remember that no obligations will be met until I have reviewed, confirmed and credited them."

Related: Surprise! Chase is refinancing your mortgage

The banks claim that 309,385 borrowers have received some kind of mortgage relief under the settlement. The total benefit of $26.11 billion represents an average of about $84,385 per borrower.

Some 21,833 borrowers completed loan modifications that lowered their mortgage debt by an average of $116,929 each. Another 30,967 borrowers have been granted trial modifications that, if completed, will cost the banks $4.19 billion, an average of $135,929 per borrower.

Related: Foreclosures fall to five-year low

Home equity loans and lines of credits were modified or erased for more than 50,000 borrowers to the tune of $2.78 billion, or $55,534 for each one.

The lenders also reduced interest rates on 37,396 loans by an average of 2.34 percentage points, a total of $1.44 billion in payment relief. Borrowers will save an average of $409 a month.

Related: 'I'm trapped in a high-rate mortgage'

All told, the banks have given more relief than the $25 billion settlement requires them to offer. But, Smith notes, the banks won't get credit under the settlement for all of the claims.

Here's why: Under the deal, the banks get full credit for reducing principal on first mortgages but only partial credit for some other fixes. But erasing home equity loans may earn banks as little as 10 cents on the dollar in credits. And forgiving missed payments to keep unemployed borrowers in their homes until they can resume payments may earn only five cents per dollar.

For their part, the banks are in some areas doing far more than anticipated. Principal reductions were expected to average about $20,000, but the actual reductions so far are about six times higher.

Only mortgages held by the banks or owned by investors who approve the modifications are eligible for relief under the settlement. That means mortgages backed by the federal government agencies Fannie Mae or Freddie Mac are not included, nor are those insured by the Federal Housing Administration. To top of page




Join the Conversation
Overnight Avg Rate Latest Change Last Week
30 yr fixed4.24%4.32%
15 yr fixed3.25%3.36%
5/1 ARM3.27%3.37%
30 yr refi4.28%4.31%
15 yr refi3.30%3.34%
View rates in your area
 
Find personalized rates:
Rate data provided
by Bankrate.com
Find Homes for sale
  • Property Type
  • Find a home in:
    New York | Atlanta | Chicago | Los Angeles
    Washington D.C | Houston | Philadelphia | More options
Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.