Official: Mortgage settlement could prompt principal reductions

Completion of a massive mortgage settlement could prompt the nation’s top housing regulator to offer principal reductions, a state official said Tuesday.

Tom Miller, Iowa’s attorney general, who was intimately involved with crafting a mortgage settlement with five of the nation’s largest banks, said he is hopeful that the Federal Housing Finance Agency (FHFA) will undertake principal reductions now that there is clear proof they are beneficial to the housing market.

{mosads}”It’s a hope,” Miller told reporters on Tuesday.

“This settlement was one of the reasons why the housing market has turned in the right direction.”

There has been an expectation that FHFA Director Mel Watt, a former House Democratic lawmaker, would adopt the principal forgiveness policy at Fannie Mae and Freddie Mac but, so far, he has not made that move in three months at the helm.

The Obama administration and many congressional Democrats had pressed previous FHFA acting director Edward DeMarco to offer mortgage principle reductions.

But he argued that it was too much of a risk for taxpayers who had already shelled out $188 billion to keep Fannie and Freddie afloat during the 2008 financial crisis.

Tuesday’s report said that Bank of America, Chase, Citi and Wells Fargo have fulfilled their consumer relief obligations ahead of schedule with 52 percent, or more than $10.5 billion, devoted to principle forgiveness, $1.4 billion more than anticipated on the first liens.

“Those are the most likely forms of relief to help keep people in their homes, which critics of the settlement and those who did the settlement wanted. I think that’s good news,” said settlement monitor Joseph Smith Jr.

Residential Capital completed its obligations in February.

Smith specifically highlighted that servicers reduced the principal balance on primary mortgages in 37 percent of cases, amounting to nearly $7.6 billion in assistance.

Another $3.1 billion, or 15 percent, went to reducing principal on second liens.

Nearly $3.6 billion, or 17 percent, of relief went toward refinancing help for struggling homeowners.

The settlement required that a majority of relief for which the banks would get credit be in first and second lien modifications and refinancing.

In many cases, the banks exceeded these requirements, the settlement said.

“It was done in a shorter period of time than I could have hoped for and provided a lot of relief to a lot of families,” Smith said.

Overall, the National Mortgage Servicing Settlement provided more than $50 billion in assistance, $20.7 billion in credited relief, which helped more than 631,000 families, according to the report.

Banks only received partial credit for some assistance, which is the reason for the differences in the figures. 

The banks were required to offer $19.1 billion in help under the deal, he said.

The Obama administration had hoped to help 1 million homeowners but Smith said he was satisfied with the outcome.

The settlement centered around a shoddy foreclosure abuses, mostly robo-signings, where banks signed off on the foreclosure process without all of the proper paperwork.

The banks are still being monitored for compliance with settlement’s new servicing rules.

Another report is expected later in the spring.

In total payments, Bank of America provided a total of $27.3 billion ($9.6B), Chase added $11.1 billion ($4.6B), Wells Fargo provided $7.9 billion ($4.6B), and Citi added $3.5 billion.

ResCap added $554 million or $257 million credited.