Some families living in the most deeply underwater states such as Nevada and California are receiving principal reductions exceeding $100,000 from the mortgage servicing settlement, Department of Housing and Urban Development Secretary Shaun Donovan said before the Senate Banking Committee Tuesday.
“It’s not a huge number (of people who received reductions) at this point — it’s in the thousands — but hundreds of thousands are now getting these letters, not just from BofA, but from all five banks,” Donovan said before the committee.
The statement comes after Bank of America (BAC) mailed letters to more than 200,000 mortgage borrowers for potential principal reduction under the robo-signing settlement. The bank began principal reduction in March, offering 5,000 trial modifications with more than $700 million in write-downs.
In the fourth quarter of 2011, Nevada homeowners' loan-to-value ratio stood at 114%, the highest in the nation, according to CoreLogic (CLGX). And 61% of mortgage properties in the state hold outstanding balances that exceed its value, also the highest.
California’s LTV ratio was 71% in the fourth quarter, while 30% mortgage properties in the state were underwater.
It varies by location, but in a state like North Carolina, where BofA is based, families are receiving $50,000 to $100,000 in principal reduction. North Carolina’s LTV ratio was 72% in the fourth quarter, while 7% of homeowners in the state state were underwater, drastically below Nevada and California.
Many families who were being evaluated for other types of modifications were able to receive principal reduction quickly after the settlement was finalized in March.
“We are very encouraged by the pace with which implementation is moving on those servicing standard,” Donovan said.
The settlement requires that not only principal reductions occur, but that there’s demonstrated ability for a family to pay and remain in their home for at least 90 days.
“What’s critical here is not just the amount of the principal reduction, but that it gets the family to a sustainable level and keeps them in their home long term,” Donovan said.