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Banks Complete $6.3 Billion in Mortgage Write-Downs

Posted on 19 Nov 2012 by Neilson

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Mortgage writedownsFive of the largest U.S. banks have provided $26 billion in homeowner relief to some 300,000 borrowers, including around $6.3 billion in mortgage debt write-downs, under the terms of a federal and state settlement of foreclosure-processing violations earlier this year, according to a watchdog's report released Monday.

Bank of America, which was required to provide the lion's share of relief under the foreclosure pact, has accounted for the majority of principal write-downs, with around $3.7 billion in homeowner debts written off. The Charlotte, N.C., lender reported that another $2.7 billion in loan-forgiveness modifications were in a trial stage as of Sept. 30.

The figures were released Monday by the independent monitor established to ensure that banks were meeting the terms of the deal. Monday's figures were reported by the banks to the monitor earlier this month and haven't yet been confirmed by the independent monitor.

Still, Joseph A. Smith Jr., the former North Carolina banking commissioner who is serving as the monitor, called the self-reported figures "encouraging."

The settlement with Bank of America and four other large banks-Ally Financial Inc., Citigroup Inc. & Co. and Wells Fargo Co. resolved state and federal investigations related to questionable foreclosure practices. Attorneys general from 49 states and the District of Columbia agreed to the settlement, completed in March.

Under the settlement, banks must provide at least $10 billion in loan write-downs and $10 billion in other homeowner aid, such as short sales, where banks allow borrowers to sell their house for less than the amount owed.

Banks receive varying amounts of credit depending on which loans they modify, and the figures reported on Monday don't necessarily earn dollar-for-dollar credit to count toward the settlement's targets.

The independent monitor's office said it hasn't yet scored how any completed relief counts towards those targets.

So far, short sales account for the vast majority of relief tabbed under the settlement, with banks forgiving around $13.1 billion on more than 113,000 properties. Many of those short sales might have happened without the settlement because banks generally lose less money on those than they do on foreclosures.

Banks wrote down around $6.3 billion debt for around 88,000 homeowners through September, and another $6.3 billion in principal forgiveness modifications for some 49,000 borrowers were in a "trial" stage at the end of September.

Among first-lien mortgages that received a principal reduction, borrowers had their loan balances cut by an average of $117,000. Second-lien mortgages that were written down, such as home equity lines of credit, received an average write-down of $56,000.