March 18, 2014 / 3:30 PM / 4 years ago

UPDATE 1-Watchdog: U.S. banks' relief to borrowers exceed terms of 2012 deal

By Aruna Viswanatha

WASHINGTON, March 18 (Reuters) - Top U.S. banks including Bank of America Corp and Citigroup provided more than the $19 billion in help to struggling borrowers they were required to offer under a landmark 2012 deal with the U.S. government, a watchdog said on Tuesday.

Bank of America, for example, cut loan balances and helped homeowners in other ways that added up to $9.6 billion in relief, even though the bank was only obligated to provide around $8.6 billion in such aid under the settlement, the monitor of the deal said in a report.

“I will say, as we have come to the end of all of this, I am satisfied and actually, happy,” Joseph Smith, the person assigned to monitor banks’ compliance with the settlement terms, said of the value of the mortgage debt the banks agreed to reduce for distressed borrowers.

The obligations stem from a $25 billion deal between federal and state authorities and five top mortgage servicers, announced in February 2012 and designed to end foreclosure abuses. The other banks on the deal are JPMorgan Chase, Wells Fargo & Co and Residential Capital LLC.

The report marks the end of the consumer relief portion of the settlement. The rest of the funds were paid to foreclosed borrowers and as cash to the states and the federal government. The banks are still being monitored over their compliance with a third portion of the deal that subjected them to new standards for servicing mortgages.


At the time the deal was announced, top U.S. officials said it could help 1 million borrowers, and President Barack Obama said it could help turn the page on the housing crisis.

But critics said the complicated structure of crediting the banks’ efforts to aid consumers could allow the banks to fulfill the settlement obligations through things they would have done anyway -- waiving deficiency judgments or processing short sales, for example.

Mortgage bond investors also worried they might end up shouldering many of the costs of the deal.

In the first report to audit the banks’ full relief efforts under the settlement, Smith said the banks got credit for $20.7 billion in relief to borrowers. They were required to offer $19.1 billion in help under the deal, he said.

The majority of that came from loans the banks themselves owned, he said.

Banks only get partial credit for some things, such as short sales of homes, so the total amount of aid to borrowers was actually considerably higher, he said.

Only around 600,000 families wound up receiving help, fewer than officials initially projected. But Smith said he was still satisfied with the extent to which banks cut borrowers’ loan balances.

“I viewed our goal as to providing...neutral facts on the basis of which this discussion about dealing with distressed loans could continue,” Smith said of his report.

“We now have a complete picture of what actually happened,” he said.

In statements, Wells Fargo and Bank of America said they were pleased to have provided the relief to customers and have continued to give assistance.

JPMorgan said it was proud of its efforts and is investing in improving its customer experience. A Citi representative said the bank was pleased Smith found it had fulfilled its consumer relief obligations under the deal.

Smith had previously certified that ResCap, which was put through bankruptcy and whose servicing business is now owned by Ocwen Financial Corp, had completed its consumer relief obligations under the deal.


When the deal was announced in 2012, investors in mortgage backed securities worried that many of the mortgages modified were those they ultimately owned, since the banks could get credit for loans they serviced on behalf of others.

In fact, the vast majority of all the banks’ credit came from addressing loans they owned themselves, Smith said. For Wells Fargo and Citi, that number stood at more than 99 percent.

Bank of America earned the most credit from loans it serviced for others - around 39 percent, according to Smith’s report. JPMorgan earned around 29 percent of its credit from loans it serviced on behalf of other investors.

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