AG says banks have erased $345 million in Conn. mortgage debt

Connecticut Attorney General George Jepsen said 5,050 distressed homeowners on average saw their debt reduced by $68,500 as part of a national settlement with five of the nation’s largest banks.

The AG reported the latest results from an independent national settlement monitor which has been providing quarterly updates on the $25 billion settlement since March 1, 2012. The deal with Bank of America, CitiMortgage, Inc., Ally Financial, Inc., J.P. Morgan Chase Bank and Wells Fargo was struck in February of that year. And 49 states participated.

In the most recent quarter ended Dec. 31, 2012, there were 2,175 Connecticut borrowers who received nearly $160.3 million in debt reduction from the banks. Under the settlement, total debt has been reduced by $345.3 million, Jepsen said.

“This is very good news for distressed homeowners and I am pleased the loan servicers are making good on their promises to provide real relief and to help people stay in their homes,” Attorney General Jepsen said. “While not everyone will qualify for help, the numbers in Connecticut show a very positive trend.”

But before every jumps aboard the good feelings train, there is some trouble underneath these numbers, as Attorney Elizabeth Lynch writes in a New York Times Opinion article. Lynch, who works for MFY Legal, a free legal service in New York, said the banks are able to push people into short sales and get credit for it under the agreement.

Here’s the link to Lynch’s piece.

In the meantime, the banks are getting credit for helping 500,000 borrowers with some type of relief since last March, including more than 276,000 in the three months ended Dec. 31, 2012, the report found.

The consumer relief includes the value of first- and second-lien principal reductions; refinancing; short sales or deeds in lieu of foreclosure; deficiency waivers; forbearance for unemployed borrowers; anti-blight activities and benefits for members of the armed services.

The settlement required the banks to provide $17 billion in debt reduction and other relief to homeowners within three years.  The agreement requires 60 percent of the credited relief to be provided through first- or second-lien principal reduction and $3 billion through refinancing.

Since Oct. 2, 2012, the five banks have been operating under more than 300 new loan servicing standards required by the settlement to reform and improve the way borrowers are treated by the companies. However, Joseph A. Smith Jr., the national monitor responsible for overseeing the banks’ compliance with the settlement terms, reported a significant increase in complaints by consumers and professionals, such as lawyers, advocates and housing and credit counselors, about the companies’ practices. Complaints are now averaging 830 a month nationally.

New York also released its numbers also. The Empire State Attorney General Eric T. Schneiderman said the national monitor showed that more than $1.8 billion in consumer relief has been delivered to New York homeowners since March of 2012. And 21,535 New York homeowners participated in reductions.

Schneiderman was a bit tougher on the banks performance than Jepsen.

Bank of America and JP Morgan Chase have been particularly active in New York, providing a combined total of 1st mortgage principal reductions for 3,151 homeowners statewide. The same cannot be said for Wells Fargo who has only provided 1st mortgage principal reductions for 315 borrowers since the program began, despite having distressed loan portfolios that are of similar size to Bank of America and Chase in the New York market.

Rob Varnon