In California, little of the relief from Bank of America, JP Morgan Chase and Wells Fargo has gone toward principal reduction to help families keep their homes.
By Alejandro Lazo and E. Scott Reckard, Los Angeles Times
November 19, 2012
Big banks are giving billions of dollars to distressed California homeowners through a landmark mortgage settlement — but mostly to get people out of their homes rather than help them stay.
Short sales, which allow underwater borrowers to sell their homes for less than they owe, have become the dominant type of relief offered in California by the big banks, according to a report on the settlement expected to be made public Monday.
Under the settlement, banks were required to give homeowners aid in the form of principal reduction, short sales and other modifications. Banks get credit for both principal reductions and short sales under the agreement, but must give 60% of the relief nationally through principal reduction to families who keep their homes. Consumer advocates had hoped the deal would serve as a test case for widespread principal reduction, particularly in the hardest-hit parts of California.
Short sales should be reserved for homeowners who couldn’t afford to live in a home even with a lower principal or for people who need to move, said UC Irvine law professor Katherine Porter, who was appointed by the state attorney general’s office to monitor the deal.
“I am pushing hard to make sure that … short sales are being used for families for whom other options are really not available,” Porter said.
Porter’s assessment is expected to coincide with another report, also expected Monday, by the monitor of the national settlement. The nation’s biggest banks this year signed a landmark $25-billion mortgage settlement with 49 of the nation’s state attorneys general and certain federal agencies. The settlement arose from revelations that banks improperly foreclosed on homes. It led to major servicing reforms, including requiring banks to offer a single contact for troubled borrowers and the restricting of dual tracking, in which banks pursue foreclosures and loan modifications simultaneously.
To read entire story, click here.