Mortgage servicers began reducing principal on Home Affordable Modification Program workouts in April to satisfy obligations under the $25 billion foreclosure settlement, according to the Treasury Department.
Bank of America (BAC), JPMorgan Chase (JPM), Wells Fargo (WFC), Citigroup (C) and Ally Financial agreed to provide up to $10 billion in principal reduction and other homeowner relief to settle foreclosure abuses in the past with the state attorneys general.
Of HAMP modification trials started on privately owned mortgages — not Fannie Mae or Freddie Mac — that held a loan-to-value ratio above 115%, servicers forgave principal on 70% of these workouts in April, up from 66% the month before, according to Treasury data released Wednesday.
Servicers started roughly 4,000 trials under the HAMP principal reduction alternative, or PRA, in April, making up roughly 60% of the workouts on those severely underwater privately owned mortgages.
The remaining 10-percentage point difference (between the 70% overall with a principal reduction and 60% under PRA) was led by servicers reducing principal on HAMP mods to satisfy the AG settlement.
“The 10% difference is all nonincentivized and largely from the settlement,” a Treasury spokesperson said.
The settlement allows servicers to reduce principal on a single mortgage and collect those HAMP incentives for a portion of the reduction, while applying the rest of the write-down to the settlement requirements.
Treasury said in January it would pay investors and servicers triple for principal reduction done under HAMP on a sliding scale. Servicers can receive between 18 cents and 63 cents for every dollar written down.
Architects of the settlement claim servicers will not be paid taxpayer dollars to match relief dollars written off under the settlement. According to the settlement consent order, the portion written down is split into two groups like in this example for a loan with 175% LTV (found in Exhibit D of the settlement):
“When a servicer extinguishes $75 of principal through the HAMP (PRA) modification in order to bring the LTV down to 100%, if the servicer receives $28.10 (37 cents on the dollar) in PRA principal reduction incentive payments from (Treasury) for that extinguishment, then the servicer may claim $46.90 of principal reduction for credit under (the settlement).”
However, there remains to date no disclosure on how many loans are running through this scenario.
When asked, a Treasury spokesperson said there was no data yet on how many of the PRA write-downs were done both under HAMP and the AG settlement. Joseph Smith, the monitor of the settlement told HousingWire that he is still developing how much will be disclosed in his quarterly reports, the first of which may come by the end of the year.
Servicers started more than 82,000 HAMP PRA trials since the program launched at the beginning of last year. Nearly 17,000 of these workouts are active. The average LTV score going into the modification was 157%, which was reduced to an average 115% after the workout.
Servicers provided more than half of all HAMP PRA modifications on mortgages located California (31%), Florida (17%) and Illinois (6%), according to Treasury data.
