JP Morgan Chase and Bank of America Claim That They Have Satisfied The Terms of The National Mortgage Settlement

In an attempt to get ahead of next month's National Mortgage Settlement monitor's report, both Chase and Bank of America have announced that they have completed their financial restitution obligations under the National Mortgage Settlement. Under the NMS, the "Big Five" (Chase, BofA, Wells Fargo, Citigroup, and GMAC) agreed to follow new mortgage servicing guidelines and to pay out a total of $25 billion in relief to homeowners.

Joseph J. Smith, Jr., the individual tasked with monitoring compliance with the NMS, released preliminary data on May 21, 2013. According to Mr. Smith's data, the Big Five provided assistance to 621,712 borrowers from March 1, 2012 to March 31, 2013. This relief totalled approximately $50.63 billion. This number is twice the settlement amount because banks were given varying amounts of credit for different types of assistance. For example, a forgiven second mortgage was credited at the rate of 10 cents on the dollar. The full fact sheet is available here.

Assuming that the banks have completed their obligations to provide assistance, I wonder whether this means that we'll see loan modifications dry up or go back to being largely deals where arrears are tacked on to the back end of the loan and the term of the loan is extended. I have been seeing more principal reductions in the last year, largely due to the incentives to provide them under the NMS. If the banks are declaring their obligations completed, then there is not much incentive for them to continue providing the same level of assistance. Given that it took the NMS to get many of them to provide the assistance in the first place, there's no real precedent for the banks doing things out of the kindness of their CEOs' hearts.

As the foreclosure crisis grinds on, it's my hope that we see more efforts by banks to keep borrowers in their homes. In a state like Illinois, where our judicial foreclosure process already increases foreclosure timeframes, resolving delinquent mortgages without foreclosing would seem like a common-sense plan. Perhaps the banks will realize that performing mortgages are more profitable in the long-term than empty houses. In the meantime, we'll have to wait and see.

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