Smart SpendingSmart Spending

Has $26B bank settlement really helped?

Homeowners who've benefited from the $25.6 billion settlement with big banks over alleged mortgage abuses have received an average of $76,615 in relief.

By MSN Money Partner Sep 10, 2012 2:56PM

This post comes from Marilyn Lewis of MSN Money.


Image: Home for sale (© Ingram Publishing/SuperStock)The five big banks dragged to the woodshed over mortgage abuses have shared early results of their restitution efforts (.pdf file). Their first required report won't be until November, but the early data show how banks have so far been distributing the $25.6 billion in restitution they've agreed to pay over three years.


The government office overseeing the settlement says the agreement, which includes new mortgage rules, could eventually change home lending for the better. But at least one critic says the banks are being allowed to skate.


The banks -- JPMorgan Chase, Bank of America, Wells Fargo, Ally Financial, and Citigroup -- had faced lawsuits over allegations of sloppy or illegal foreclosures and poor or no responses to struggling mortgage customers looking for help with their loans.


The deal

Last spring, state and federal negotiators convinced them to make commitments in exchange for dropping the suits. Writes CNNMoney:

The settlement was meant to atone for foreclosure processing abuses dating back to 2008. Under the deal, which was approved by a federal judge in April, the banks get credit for helping homeowners avoid foreclosure, by doing such things as reducing the principal on loans and refinancing mortgages to lower interest rates.

The banks also agreed to 304 new "servicing standards" for treating distressed customers. Some seem basic and obvious, but some banks reportedly violated them repeatedly in the past. For example: Documents filed in bankruptcy and foreclosure proceedings must:

  • Comply with the law.
  • Not contain false information.
  • Contain only information that's been verified.
  • Be dated.
  • Be signed by the person filling out the form, except where electronic filing is permitted.

A side note: Bloomberg reports that yet another settlement, with four other banks -- U.S. Bank, PNC, SunTrust and HSBC -- is under discussion. (Post continues below.)

The winners

What we want to know, of course, is: Who's getting the money from the March settlement?


The banks spent nearly $10.6 billion between March 1 and June 30. About $8.7 billion was used to finance short sales, in which the homeowner owes more than the sale price and the bank takes a loss. Nearly half -- $4.9 billion -- was spent by Bank of America.


MarketWatch and the Los Angeles Times give detailed accounts of the spending. Here are highlights:

  • 137,846 borrowers, in all, received help -- an average of about $76,615 each.
  • Four banks (excluding Bank of America) spent $749 million (average: $105,650 per borrower) on modifying 7,093 first mortgages. Chase did the most, modifying 2,920 mortgages with $367 million.
  • Bank of America did no modifications in that period. A bank spokesman told reporters that since July 1, however, it has done 3,823 first-mortgage modifications, worth $596 million.

It's too soon to tell how close the banks are toward their goal of $26.5 billion in restitution. The federal monitor hasn't scored their progress yet. The banks get credited differently for various types of consumer relief.



"I am cautiously optimistic, I am encouraged by what is in the report," Shaun Donovan, secretary of Housing and Urban Development, told MarketWatch.


The near-term goals, says Joseph A. Smith Jr., settlement monitor for the federal Office of Mortgage Settlement Oversight, are "less complaints, less unnecessary foreclosures" and "relief to consumers -- borrowers -- that we can show helps not only them but their neighborhoods and their communities."


Eventually, the settlement can "help restructure the mortgage lending industry in a way that will be more fair to consumers and get better results for the banks, frankly, for consumers and for our country," he adds.



The New York Times is skeptical. An editorial, "Still no justice for mortgage abuses," says the settlement has been a disappointment since it was announced in March:

At the time, it looked like a sweet deal for the banks. The fines were paltry compared with the damage done to homeowners and the economy. And much of the relief the banks were obliged to provide could be met by continuing more or less with business as usual.
It still looks like a sweet deal.

The number of borrowers helped so far is "roughly the number that would have been expected under various aid programs in effect before the settlement," says the Times. It added, "Worse, with some 3 million borrowers now in or near foreclosure, according to Moody's Analytics, it is nowhere near the level of relief needed to fix the housing market."


The goal was to keep underwater borrowers in their homes by reducing their loan balances, so the paper faults the banks for mostly doing short sales, in which borrowers must leave.

There's another problem with short sales and modifications, the Times says. Much of the debt forgiven by banks ends up as taxable income for the homeowners. When homeowners can't pay those big tax bills, the unpaid debt becomes a burden for taxpayers.


The Mortgage Forgiveness Debt Relief Act absolves borrowers of taxes on debt forgiven in 2007 through 2012. But not all debt qualifies. The IRS rules cover only "forgiven or canceled debt used to buy, build or substantially improve your principal residence, or to refinance debt incurred for those purposes." That means mortgage borrowing to finance consumer spending, education, travel or a child's wedding probably won't qualify.


More on MSN Money:

Sep 11, 2012 8:00AM

How do you setle out of terrorism? Some people will get a check. The entire nation will remain a wreck and live in costly wreckage because of banks. Why didn't we-- Close the banks, fire the bankers and ban them from financial and consulting roles for life? Why didn't we force-reconcile from the Federal Reserve through it's member banks to the smallest mom & pop bank, regulate, establish supervision with actual vision and re-open them? Why haven't we ended the Federal Reserve and not only fixed the Bank Rate but also mandated a single lending rate? Why haven't we abolished the Tax Reform Act and the Gramm Leach Bliley Act? Both Acts can be directly attributed to financial corruption.


Giving a few people a few dollars is no different than Dubya giving America $600 checks that raised the National Debt and Debt Ceiling (the true reasons for it). You get a few dollars now and pay through the nose forever. The debt crisis isn't hard to figure out. We the People have worked with fewer jobs and income to repay all we owe. Big business, Big Oil, Big Financial and Big Law have borrowed Trillions at the lowest rates in history to ensure that we will repay debt instruments THEY hold-- forever. The same people control all of our currency AND own the debt contracts on it. Time for a new currency and a restoration of commonsense.


So what if banks wrote checks averaging $76,000 to families they evicted from homes and sent to charity shelters. Those lives won't be healed by it.


Close the banks. End the Federal Reserve. Get rid of Wall Street. If we aren't 100% invested in job recovery RIGHT NOW, we won't be here by the New Year. France is rioting today. The call to all wealth is-- GET OUT. Where do you you go once you've screwed the whole world?


Why haven't we heard from Jamie Dimon since he was accused of irresponsibility? Is there more than one set of laws in America? You can lobby for and slip crap legislation like the Gramm Leach Bliley Act in- that legalizes collusion and puts banks above the law... but you can't live among us once you do. We don't need a financial sector. Let's get going on getting rid of what ails us. What is in YOUR wallet, Jamie? You didn't earn a penny of it.

Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
100 character limit
Are you sure you want to delete this comment?


Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.


Smart Spending brings you the best money-saving tips from MSN Money and the rest of the Web. Join the conversation on Facebook and follow us on Twitter.