Principal reductions under AG settlement remain in the dark
Mortgage servicers already wrote down principal on loans bundled into private bonds in order to satisfy the robo-signing settlement, but not even the monitor will know how many for some time, according to those familiar with the agreement.
A total of 7,093 borrowers received principal forgiveness through a completed modification from four of the five largest servicers JPMorgan Chase (JPM), Wells Fargo (WFC), Citigroup (C) and Ally Financial, according to an initial report from the monitor Joseph Smith.
Bank of America (BAC) completed none but does have 12,000 under trial plans for a write down.
A total of 28,047 borrowers were in an active trial modification that included a write down. Combined, the completed and trial workouts equaled $3.75 billion in forgiven principal.
When the deal was first struck in February and later approved in March, mortgage bond investors complained they would be stuck paying for foreclosure abuses the servicers themselves committed.
A Chase spokeswoman did confirm some of the roughly 3,000 principal reduction modifications the bank completed as of June 30 under the settlement were done on select private-label mortgages. Most, however, were done on the portfolio loans, but an exact percentage could not be disclosed. The ones done on private-label mortgages also passed a net-present value test permitted by the investor, meaning it was more beneficial than a foreclosure.
Bond investors were told that the servicers would focus most of the effort almost entirely on the servicers' own portfolios, not loans bundled into securities. Every dollar a servicer writes down on its own portfolio is credited toward the $20 billion in relief promised as opposed to just 45 cents of every dollar forgiven on mortgage-backed securities collateral. But to date, no exact number for how many private loans are targeted to get a write-down has been given to the investors who own a stake in them.
Joseph Smith, the monitor of the settlement, said servicers negotiated not to disclose exactly what loans were getting the write-downs until they ask for satisfaction certificates and scoring for credits to the $20 billion.
The servicers "weren't keen to make that disclosure," he said in an interview with HousingWire.
For now, the data is self-reported.
"The only time that break down is relevant to me is when we're scoring and when they seek satisfaction on what they've done," Smith said. "Before that, there really isn't any requirement under the agreement to make a distinction. That's the statute. I don't know when that will be."
For now, the servicers are focused on providing the relief as quickly as possible. For every dollar written down in the first year after the settlement was struck, they get an extra 25 cents credited toward the $20 billion.
"Chase is proud to lead one of the largest foreclosure prevention efforts in the country," Frank Bisignano, head of mortgage banking at Chase, said in a statement. "From the start of the housing crisis, it has been our top priority to help homeowners who are struggling to make their mortgage payments. We are on track to fully implement the settlement well within the timeframe of the agreement."
By comparison, BofA has completed no principal reductions under the settlement. It did provide a vast majority of the short sales and total relief through June 30.
Smith said he was happy with the initial gross dollar amount of roughly $10.5 billion in relief granted so far. Short sales took a large percentage of the early assistance, but that's because they are booked when they are closed. The principal reduction workouts take at least three months to successfully complete the trial period.
"There will be a lot of conversation about the break down of it. There are some people who have a serious and understandable concern about all this," Smith said. "But I'm happy some consumers are getting relief from indebtedness. I think we made a good start. I actually think we'll have a clearer picture in November and again in February when the next reports will be released."