* Five banks have provided $10.6 bln in relief
* More short sales than modifications
* BofA says it has made progress since report period
By Rick Rothacker and Aruna Viswanatha
CHARLOTTE, N.C./WASHINGTON, Aug 29 Bank of
America Corp is lagging other banks in meeting its
requirements to reduce customers' mortgage balances under a $25
billion foreclosure settlement with the U.S. government,
according to a report released on Wednesday.
Five financial institutions that are part of the settlement
provided $10.6 billion in consumer relief from March 1 to June
30, with $8.7 billion in the form of short sales in which
customers sell their homes for less than the mortgage's value.
The report is the first update on how the five banks are
doing in meeting the terms of the March settlement with federal
agencies and state attorneys general. The settlement wa s meant
to res olve al legations that they mishandled foreclosures, and
the banks have three years to meet the requirements or face
Unlike its competitors, Bank of America did not modify any
first-lien mortgages to reduce the amount of money the borrower
owes, and it also did not complete any refinancings by June 30,
according to the first report by Joseph Smith, the official
monitoring the agreement.
Bank of America did allow $4.8 billion of short sales, the
most of the five banks.
Bank of America spokesman Dan Frahm called the report an
"early snapshot" and said the bank has made significant progress
since June 30. The second-largest U.S. bank expects to meet all
of its required targets in the first year, he said.
The bank has completed more short sales because they did not
require new processes to be rolled out, he said.
The settlement requires banks to provide around $20 billion
of consumer relief by reducing loan balances for struggling
borrowers and refinancing loans for customers whose homes are
worth less than the value of their mortgages.
JPMorgan Chase & Co completed $367 million in first
lien modifications in which borrowers had their loan balances
reduced, about half of all modifications.
Counting all types of relief, Bank of America provided $4.9
billion in assistance in the four-month period, followed by
JPMorgan ($3 billion), Wells Fargo & Co ($1 billion),
Citigroup Inc ($873.4 million) and Ally Financial Inc
More than 137,000 customers have received an average of
nearly $77,000 in relief under the agreement so far, according
to the report.
While the banks have provided more than $10 billion in
assistance, they are not necessarily halfway to meeting their
obligations, since the settlement only provides for partial
credit for certain kinds of relief. The banks only receive
credit for $0.45 of every dollar of a writedown through a short
sale, for example.
In an interview, Smith, the former North Carolina state
banking commissioner, said it was too early to say whether the
banks will meet their targets in the required three years. "My
job is to make sure they do," he said.
Counting methodology helped banks tally more short sales in
the report, he noted. Short sales can be recorded as soon as
they are booked, while loan modifications are not tallied until
borrowers have made about three payments.
Banks are required to meet at least 60 percent of their
obligations through modifying first and second loans, so short
sales are not expected to eventually be the bulk of the consumer
The settlement required banks to reduce the amount of
principal owed by borrowers when modifying loans, going beyond
simply reducing interest rates or extending the time borrowers
have to pay off their obligations. Combined, the banks wiped
away $1.3 billion in principal, counting all types of
modifications, including some in the works before March 1.
The report "indicates that the banks in general are heading
in the right direction," Housing and Urban Development Secretary
Shaun Donovan, who helped negotiate the settlement, said on a
conference call with reporters.
If a lender does not meet its required relief within three
years, it will be required to pay a penalty of no less than 125
percent of its unmet commitment, the report said.
The numbers published Wednesday were self-reported by the
banks and have not yet been verified by the monitor's office.
The agreement required Bank of America, which bought major
subprime lender Countrywide Financial in 2008, to provide the
most consumer assistance. The bank so far has provided no relief
through refinancings, according to the report. It has completed
$54.2 million in second-mortgage modifications, which are home
Bank of America, however, has offered about $2 billion in
first-lien mortgage modification trial offers and has $803
million in trial offers in process.
Bank of America also appeared to bear the brunt of new
complaints about servicing practices. It was the target of
nearly half of new complaints from consumers and more than half
the complaints from housing counselors tallied by the monitor.
As of Aug. 21, the bank has increased its total consumer
relief completed to about $8 billion from about $4.9 billion at
the end of June, bank spokesman Frahm said. The bank has now
completed a total of $596 million in first-lien modifications,
$1.7 billion in second-lien modifications, $5.8 billion in short
sales and $227 million in refinancings, he said.
The bank launched its refinancing program in August by
initially making offers to 3,000 customers, Frahm said. About
1,000 of those refinancings have been completed.
Banks are taking different approaches in how they implement
the settlement. For example, J.P. Morgan in some cases is
automatically reducing interest rates for customers eligible for
refinancings. At Bank of America, customers need to verify
income, but "it's definitely a streamlined process," Frahm said.
Ira Rheinhold, who heads the National Association of
Consumer Advocates, said he would expect to see banks providing
more modifications that included principal reductions under the
settlement, but was "cautiously hopeful" that the trial changes
described in the report would soon convert to permanent
modifications. He also said he did not yet see any noticeable
improvement from servicers from the new standards.
Smith was not required to make Wednesday's report, but said
he wanted to provide the public with an update on the
settlement. The first report mandated under the agreement is due
in the second quarter of next year.