Bank of America Slow To Meet Foreclosure Settlement Requirements

Five financial institutions that are part of the settlement provided $10.6 billion in consumer relief from March 1, 2012 to June 30, 2012 with $8.7 billion in the form of short sales in which customers sell their homes for less than the mortgage's value. Bank of America Corp, however, is lagging other banks in meeting its requirements to reduce customers' mortgage balances under the $25 billion Nationwide Foreclosure Settlement with the U.S. government, according to a report released on Wednesday.

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 was meant to resolve allegations that they mishandled foreclosures, and the banks have three years to meet the requirements or face penalties.

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 refinances 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 ($755.8 million.)

More than 137,000 customers have received an average of nearly $77,000 in relief under the agreement so far, according to the report.

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Should Foreclosure Settlement Money Go To State General Funds

States' approved uses for their Foreclosure Settlement shares range widely. A National Conference of State Legislatures summary said Colorado's money is going for housing-related programs and services, Georgia is using its share for regional and rural economic development, and Nebraska's is being deposited in the state's rainy day fund.

While critics say the money should be used to help mortgage borrowers, a lawyer for the state said Wednesday that Arizona is entitled to use $50 million of its share of a multistate foreclosure settlement paid by lenders to help balance the state budget because it's compensation for revenue lost due to the housing market collapse.

"Everyone who pays taxes in this state has been affected by this foreclosure crisis," said Douglas Northrup, representing Attorney General Tom Horne. "It doesn't have to be put aside for a narrow subset of people who were in danger of losing their homes ..."

Tim Hogan, an attorney challenging the $50 million transfer to the general fund disagreed, saying that's a legally shaky argument and that the money is intended for services and other uses directly related to mortgage foreclosures.

"Just sticking money in the general fund doesn't improve or make better the foreclosure crisis," he said. "You're just spending money on state government."

Arizona is not alone among states in using settlement money to prop up its budget, but other states have designated all or most of their shares to bolster or launch hotlines, financial counseling and other services and programs directly related to mortgage foreclosures.

Hogan, an Arizona Center for Law in the Public Interest attorney, said the only compensation the state can claim is for direct costs, such as the expense of investigating lenders' mortgage practices.

Judge Mark Brain of Maricopa County Superior Court said he'd rule within several weeks on the opposing sides' requests that he dismiss the lawsuit or block the transfer.

The $50 million represents slightly more than half of the $98.8 million of Arizona's share of settlement money.

Aside from the money provided to state governments, other pots of settlement money are intended to compensate or help borrowers.

Much of the Arizona case centers on legal arguments about whether the challengers had a legal basis to sue and whether the Legislature could appropriate the money once Horne agreed to put it into a trust fund as part of the settlement.

A similar turf issue is playing out in Florida where Attorney General Pam Bondi is feuding with the Legislature over who gets to decide how to spend that state's $334 million allotment.

Bondi has insisted that she be allowed to spend the money without having to get prior approval from the Legislature, while lawmakers contend they have constitutional authority to spend the money.

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Fannie and Freddie (GSE) Allow Short Sales For Current Mortgages

The Federal Housing Finance Agency (FHFA) announced today that Freddie Mac and Fannie Mae are revising their short sale guidelines and delegating authority to their mortgage servicers to approve short sales as of November 1. The new procedures are part of the Servicing Alignment Initiative which the Federal Housing Finance Agency has directed the GSEs to develop.

FHFA has said that the new guidelines will move short sales forward expeditiously for borrowers who have missed several mortgage payments, have low credit scores and serious financial hardships because the documentation required to demonstrate need has been reduced or eliminated.

Servicers will also be able to process short sales for borrowers who are current on their mortgages but are facing sudden hardships such as death, divorce, disability, or relocation of more than 50 miles for reasons of employment. Servicers will be allowed to approve short sales in such circumstances without additional approval from Freddie Mac or Fannie Mae.

The two GSEs will waive the right to pursue a deficiency judgment in exchange for the borrower making a financial contribution to the remaining principal balance or signing a promissory note to that effect if that borrower has the capacity to do so.

The changes will consolidate the existing short sales programs of the GSEs into a single uniform program and provide both servicers and borrowers clarity on processing requirements when a foreclosure sale is pending.

The streamlined program rules will enable lenders and servicers to quickly and easily qualify borrowers, who do not have to be delinquent on their mortgages, to qualify for short sales. As a further step to facilitate speedy sales, both of the GSEs have authorized a payment of up to $6,000 to incentivize second lien holders to allow the short sales to proceed.

Additional changes will make it easier for servicers to process short sales for members of the military who must relocate due to Permanent Change of Station orders. In these cases servicers can streamline the process including the elimination of back-end debt-to-income ratios and removes the obligation for borrowers to contribute funds to cover the shortfall between the sales price and their outstanding mortgage balance.


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