By Aruna Viswanatha and Rick Rothacker
WASHINGTON Feb 21 Five top U.S. banks are on
track to meet their financial obligations to help struggling
homeowners under a 2012 federal-state settlement to resolve
mortgage abuses, the watchdog overseeing the agreement said on
But the watchdog, former North Carolina Banking Commissioner
Joe Smith, said the banks still needed to improve their
compliance with the servicing standards laid out in the
settlement. Complaints about how the banks deal with problem
loans are still coming in, he said.
In February 2012, Bank of America Corp, JPMorgan
Chase & Co, Citigroup Inc, Wells Fargo & Co
and Ally Financial agreed to fund about $20 billion in
consumer relief to resolve allegations of bank misconduct in
processing foreclosures and servicing home loans.
The majority of that was earmarked to help distressed
borrowers stay in their homes.
In a report released on Thursday, Smith said the banks had
said they had given $45.8 billion worth of relief to struggling
homeowners, but a large portion of that came in the form of
short sales, which only partially count toward the companies'
obligations under the agreement.
"I'm encouraged by the consumer relief piece of the
settlement," Smith said in an interview. "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 in a statement on Thursday that it was
on track to meet its financial obligations by the end of March.
Wells Fargo said it had met almost 75 percent of its
consumer relief target and had completed the loan refinancings
it had been required to do.
JPMorgan said it expected to fulfill its settlement
requirements within the first year or shortly after that.
Shares of JPMorgan were down 1 percent in midday trading,
while Bank of America and Citigroup each fell about 2 percent.
Wells Fargo was up 1.1 percent.
SPEEDING THE RELIEF
The banks completed $19.5 billion in short sales and $11.6
billion in second lien modifications and extinguishments, the
In a short sale, a bank accepts less than the total amount a
borrower owes on a mortgage in order to avoid foreclosing on the
Short sales are generally seen as more favorable to
homeowners than foreclosures. They also usually cost the bank
less, and critics have asked whether the banks would offer the
short sales regardless of the settlement.
Under the agreement, the banks only receive credit for 45
cents of every dollar of a writedown through a short sale and
need 30 percent of their credit to come in modifications of
Slightly more than 320,000 borrowers received some type of
assistance that helped them keep their homes, including a loan
modification or refinancing help, which totaled about $24.7
billion, or $76,500 per borrower, the report said.
The banks appear to have made some progress in reducing
mortgage balances for borrowers in financial trouble, one of the
goals of the settlement. They forgave $7.4 billion in first loan
principal for about 70,000 borrowers, the report said, with an
average of $105,000 shaved off for each borrower.
"We have already surpassed our initial expectations, and the
settlement is testament to the fact that large-scale principal
reduction can be used an important tool in our efforts to
prevent foreclosures without incurring negative results," U.S.
Housing and Urban Development Secretary Shaun Donovan, who
helped negotiate the settlement, said in a statement.
Under the settlement, banks were also encouraged to meet
their obligations within the first year, to speed relief to the
struggling housing sector.
Last week, monitor Smith said Ally had satisfied its
requirement to provide $200 million in modifications and other
consumer relief under the settlement.
The lender and its subsidiaries were credited with giving
$257.4 million in assistance, more than required, but they must
still solicit borrowers for the program and provide help if they
In the report, Smith said other banks had also asked him
this week to certify that they had met their obligations, but he
did not name the companies.
He also said he had received more than 5,700 complaints
since last May from consumers whose loans are serviced by the
five banks. Most of those complaints stemmed from problems in
the loan modification process or with customer service.
Smith said he expected to provide information about the
banks' compliance with the servicing standards in a report due