Remember how the big banks earlier this year settled a lawsuit over their terrible lending practices by agreeing to help homeowners make their mortgages more affordable?
Turns out much of the "help" so far has resulted in more families losing their homes.
The $26 billion national mortgage settlement signed by five banks back in February was supposed to provide relief in the form of debt forgiveness and lower-interest loans. (You can read more about the mortgage settlement here.)
But about half of the relief offered since March has come as a result of short sales, according to a recent report from Joe Smith, the monitor of the settlement.
In a short sale, a bank lets borrowers sell their homes for less than the outstanding balance on the mortgage.
So, yes, people are still losing their homes. And a short sale is something banks do on a regular basis, like brushing your teeth.
Only now banks get credit for doing what they were doing anyway.
That's probably why they make up a large amount of the relief that banks have provided.
|Completed modifications||$2.56 billion|
|Short sales||$13.13 billion|
|Trial modifications||$4.19 billion|
Of the billions in relief offered through September, an overwhelming 49% went to forgiving debts via short sales, the report notes.
Banks have waived the principal balances of 113,534 short sales by an average of $115,672.
So far, only 21,833 borrowers have successfully completed a mortgage modification, and only 50,025 have modified a home equity loan or second mortgage.
Banks simply aren't allocating this money in our favor, but it's not like we had high expectations.
When the settlement was announced, we said then we feared it would do a lot more for the banks than for the millions of families who have lost their homes to foreclosure or seen the value of their homes tank.
We hate to say it, but so far our fears have proven valid.
These banking behemoths should be spending a lot more of that cash on helping the millions of homeowners who are still underwater stay in their homes.
They can do that by erasing debt and helping borrowers refinance into loans they can afford.
Granted, banks have three years from March 1, 2012, to complete the requirements stipulated in the settlement. And we should note the agreement requires that 60% of the relief come in the form of loan modifications.
So there's a lot of work left to be done.
The settlement also provides banks with an additional 25% credit for any principal reductions or refinancing that take place within the first 12 months.
You'd expect them to jump all over that.
Perhaps it's because they know that as long as they meet the requirements, they'll slide by.
Until the attorneys general involved in the settlement step in and make sure the money is spent properly, it looks like we'll have to watch these banks take advantage of the system and skimp on their obligation.
Have you seen any relief from the mortgage settlement? Tell us about it in the comments section below.