Joe Smith, the former banking commissioner of North Carolina, said that America’s top five banks are likely to fulfill their financial obligations to help homeowners as part of a 2012 settlement to resolve mortgage abuses.
Smith, however, pointed to nearly 6,000 consumer complaints related to how banks handle problem loans, adding that banks should work to improve their compliance with the settlement’s established mortgage servicing standards, the Chicago Tribune reports.
Last February, Ally Financial, Bank of America, Citigroup, JPMorgan Chase and Wells Fargo agreed to invest approximately $20 billion in consumer relief funds to resolve allegations of misconduct related to mortgage servicing and the foreclosure process. A large majority of the funds was intended to help struggling homeowners hold on to their homes.
Smith said that while the banks maintain that they’ve provided more than $45 billion in relief to homeowners, a large portion of the relief came in the form of short sales, which only partially satisfy the institutions’ obligations in the settlement.
“I’m encouraged by the consumer relief piece of the settlement,” Smith said, according to the Chicago Tribune. “I’m satisfied we’ve got a good infrastructure set up to monitor the banks going forward on the servicing standards, and I understand there’s still work to do on that.”
Bank of America said last week that it would meet its entire financial obligation by the end of March, while Wells Fargo said that it had met nearly 75 percent of its consumer relief target and finished the required loan refinancings. JPMorgan said at the time of settlement that it would fulfill its requirements within the first year or shortly thereafter. Ally has already satisfied its requirement of providing $200 million in consumer relief.
Shaun Donovan, the secretary of the U.S. Department of Housing and Urban Development, echoed Smith’s concerns, saying that banks need to improve their mortgage servicing processes.
“While we are celebrating real progress today, we also are recognizing that we have to hold the banks’ feet to the fire to complete the settlement, to live up to the servicing standards that were put in place,” Donovan said, the Chicago Tribune reports.
The banks processed $19.5 billion in short sales, in which the bank accepts less than what the borrower owes on a mortgage to avoid foreclosing on the property. Short sales are generally more preferable to a consumer than foreclosure, and they often cost the bank less, leading many critics to question whether the banks would offer the short sales were it not for the settlement. The banks also processed $11.6 billion in second lien modifications and extinguishments.
Under the settlement, the banks agreed to take credit for only 45 cents of every dollar involved in a short sale and need to generate 30 percent of their credit through first loan modifications. More than 320,000 borrowers have received some assistance, totaling approximately $24.7 billion, or $76,500 per borrower, according to the Chicago Tribune.