Just 83,000 Homeowners Get First-Lien Principal Reductions from National Mortgage Settlement, 90 Percent Less Than Promised

By David Dayen, a lapsed blogger, now a freelance writer based in Los Angeles, CA. Follow him on Twitter @ddayen

Yesterday, the National Mortgage Settlement monitor, Joseph Smith, released his final crediting reports, confirming that all five banks (Wells Fargo, Bank of America, Citi, JPMorgan Chase and Ally, now known after bankruptcy as Residential Capital, or ResCap) have now satisfied the consumer relief portion of the foreclosure fraud settlement. The banks were required to spend $20 billion in “credited” relief (some actions received less than a dollar-for-dollar credit). Smith exults that the gross relief provided totaled over $50 billion, and that “more than 600,000 families received some form of relief.”

What the mainstream media reports on this don’t tell you is that the $50 billion number is wildly inflated: for example, it includes $12 billion worth of deficiency waivers in non-recourse states, which the IRS confirmed have no value whatsoever. But I didn’t know just how inflated these numbers were, and how empty the promises, until I went through them all.

HUD Secretary Shaun Donovan did make a prediction about how many homeowners would get relief under the settlement, so we have a benchmark. He used it over and over in the PR push to get it inked. The number? 1 million.

About one million American homeowners would get writedowns in the size of their mortgages under a proposed deal with banks over shady foreclosure practices, Housing and Urban Development Secretary Shaun Donovan said on Wednesday […]

“We’re very close to a settlement that would both fix the servicing problems, but also help over a million families around the country stay in their homes and get help,” Donovan said at a U.S. Conference of Mayors meeting in Washington.

Even at the time this seemed ludicrous; a study from the Brookings Institution showed that only 500,000 would be eligible for principal reductions, given the constraints of the settlement (no Fannie/Freddie loans, for example). But it played out even worse than these fears.

The total borrowers helped with “some form of relief,” Joseph Smith reported, was 600,000, a little over half of Donovan’s promise. But Donovan specifically said that 1 million would receive principal reductions. The 600,000 includes borrower transitional funds (as in, “you have to leave your home, here’s $1,000”), short sales, deed-in-lieu foreclosures, deficiency waivers, forbearance measures, anti-blight actions, and refinancing). Moreover, it includes second-lien principal reductions, which in a large majority of cases, almost all of them, are worthless and unsalvageable. So you have to separate the wheat from the chaff to figure out just how many homeowners got first-lien principal reductions that helped them “stay in their homes.”

Frustratingly and probably by design, the crediting reports do not break down those numbers; you have to go into the individual court reports for each bank. The numbers are further cut up in fairly odd ways – there are different types of first-lien mortgage modifications listed, including “Principal Forgiveness,” “Forbearance Forgiveness” (well which is it, forbearance or forgiveness?), “Federal Program Forgiveness,” “Conditional Forgiveness” and “180 Days Past Due with Forgiveness.” I’m going to be nice and keep in everything but the “conditional” forgiveness, which is after all conditional, and the 180 DPD, which is forgiveness on a loan that appears unrecoverable. So with that in mind, here are the numbers for first-lien principal forgiveness for each bank (I’ve linked to the court report so you can check this yourself):

Bank of America: 30,609
JPMorgan Chase: 18,114
Citi: 10,296
Wells Fargo: 23,248
Ally/ResCap: This one is harder to figure, because the court report does not break down the numbers at all. The summary shows that ResCap devoted about $130 million to principal reduction. Assuming an average $100,000 principal reduction each, which was roughly the standard, you get about 1,300 borrowers.

Total all of those up, and you’re left with a grand total of 83,567 first-lien principal reductions from the settlement. That means that Donovan over-promised by about 90% when he said that 1 million borrowers would get principal reductions.

Just as an example of how the banks gamed this crediting system, we can look at Bank of America’s chart (page 22 of this report). Of the 317,028 homes given “relief,” nearly half of them, 141,539, were for second-lien modifications, and another 122,384 were for short sales and borrower transition assistance. Less than 10% of the borrowers “helped” were given first-lien principal reductions. In other words, to pay a penalty for misconduct, Bank of America mostly did what it would have normally done anyway in its course of business, facilitating short sales and extinguishing worthless second liens. Only this time, they got credit for those routine activities, to rid themselves of their penalty.

I thought the numbers would be ugly, but not THAT ugly. We already knew that the punishment would not come close to fitting the crime here, with abuse of millions of borrowers forced out of their homes with false documents settled for what amounted to pennies. But the Secretary of Housing and Urban Development sold the settlement on a promise of helping 1 million homeowners, and the final number missed the cut by over 916,000. That’s incredibly sad, and shows the essential dishonesty Donovan displayed in his PR push back in 2012.

Needless to say, we’re used to the Obama Administration falling far short of their goals for homeowner relief, whether because of a lack of interest or a desire to foam the runway for the banks or whatever. Even still, the level of duplicity is breathtaking. Belatedly, the housing groups who initially supported the settlement have come around and acknowledged this; in a statement, Kevin Whelan of the Home Defenders League noted that “too much of the relief came in forms that still left families losing their homes (like short sales) or activities that the banks might have done anyway (like second lien reductions).” But it’s cold comfort for these groups to recognize this sellout after it’s already taken place, instead of when the fight mattered.

Joseph Smith, in his final statement, has the gall to say that “in many cases, the banks exceeded” their requirements under the settlement. That speaks to how flawed the settlement was in its design more than anything.

The servicing standards, which have gone so well that Attorneys General have threatened to sue the banks for non-compliance, will continue until the end of 2015. But they are largely duplicated by the Consumer Financial Protection Bureau’s servicing rules. So in effect, the book has closed on the National Mortgage Settlement, one of the most shockingly awful examples of government cowardice and corruption in recent American history.

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About David Dayen

David is a contributing writer to Salon.com. He has been writing about politics since 2004. He spent three years writing for the FireDogLake News Desk; he’s also written for The New Republic, The American Prospect, The Guardian (UK), The Huffington Post, The Washington Monthly, Alternet, Democracy Journal and Pacific Standard, as well as multiple well-trafficked progressive blogs and websites. His has been a guest on MSNBC, CNN, Aljazeera, Russia Today, NPR, Pacifica Radio and Air America Radio. He has contributed to two anthology books, one about the Wisconsin labor uprising and another on the fight against the Stop Online Piracy Act in Congress. Prior to writing about politics he worked for two decades as a television producer and editor. You can follow him on Twitter at @ddayen.


  1. Aaron Layman

    “one of the most shockingly awful examples of government cowardice and corruption in recent American history” I think that’s a fairly accurate description. Borrowers asked for restitution, but instead they got buried with corruption and government task forces. No real structural reforms, and no accountability whatsoever for the banks who concocted these schemes, and now the real estate industry is lamenting that we have a shortage of qualified buyers. Well duh! You just spent the last 5 years papering over some of the biggest frauds in history.


    1. chumpstakes

      Mr. Layman. I read your article at seekingalpha, the first half, the only part permitted without signing up for perpetual email.
      Not bad.
      But then I followed the links to discover that the homes your company offers are part of the problem — mammoth McMansions, 4k to 5K sq.ft. of marshmallow. These have been stapled together across the land, even in my home town of Ann Arbor, MI has been blighted by this mine is bigger than yours phenomenon. A large house there, in the ‘60s was 2000 sq.ft.
      What’s with these plastic monstrocities you offer at a million bucks a pop? And you have the gall to complain about unaffordability. Sheesh.

  2. diptherio

    Well, to be fair, 90 percent less than promised is still 10 percent more than I was expecting…the cup isn’t 90 percent empty, it’s 10 percent full! All in how you look at it.

  3. allcoppedout

    Why are we scared of transferring stuff like buildings we live in to the ownership or other form of right (tenancy and maintenance) to people who live in them? The lies hardly surprise me and remind me of project after project here that pretend to address real problems but are really PR. A few years ago I had £2 million in an EU project and have just worked out I could have achieved more with £200K if left to spend it where needed.

    I now suspect the real problem is the professional class, whether right or left. We suck money up like a coke fiend just released from a short sentence.

  4. Wake Up America!

    It was obvious from the start that the only group to receive “forgiveness” would be the banks. The National Mortgage Settlement was and is a joke. Joseph Smith is nothing but a bank shill – check out his resume.

    Since most of the states took money earmarked for homeowners and shored up their balance sheet, maybe homeowners will be paid back through FEMA or Superfund. Never mind, I’m sure the federal government will lend the banks ZIRP money to create a “Superfund” to clean up the millions of toxic titles they left behind.

    Thank you, David. Your last sentence sums it up perfectly.

  5. Jay

    Now I know what to do when fundraisers from my political party call up: Announce the intention to give $1,000. Then not follow through. If enough of us did this, they’d start to have real problems. It messes with their planning. It would make them question who can be taken at their word and can be relied upon to help them. They wouldn’t know why it was happening, and certainly wouldn’t be able to infer a correlation to their own policy, PR, and political actions, but what’s good for everyone else is good for them. We’re all in the same boat, but they’ve been drilling holes in the keel for years. It’s time their feet got wet.

  6. Wake Up America!

    I really, really would like Joseph Smith to read this. So I called the Office of Mortgage Settlement Oversight to see if I could coax someone to give me his email address. Having emailed his office on three (3) other occasions with no reply, I was not optimistic.

    Sure enough, the person who answered advised they could not give out his email address. Once again, I was advised to send it to the info@….. – They have a particular group that responds to emails. When I asked how many people made up the email group, the answer was “one.”

    This is reminiscent of Schneiderman’s task force that had no office and no phone lines.

    What a joke this all turned out to be!

  7. John Yard

    I couldn’t help but think of the people holding up signs at the Democratic National Convention ,
    which read ‘Defend the Middle Class’… another sham program.

  8. Jim A

    Is there any way of knowing the percentage of those second-lien principle reductions were ones where the bank also held the first lien? The incentives are very different for the bank if they’re trying to salvage value from their position on a first lien. At least in that case they have no incentive to block a short sale to try and get some “go away” money from the borrower or the first lien holder.

  9. steelhead23

    Does this grand settlement preclude wronged individuals from suing their banks/servicers? If it does, then the government has taken something of value (the right to sue for damages) without just compensation – a violation of the 5th Amendment. Probably not actionable, but there it is.

  10. C. Osborn

    Rebecca Marione, the person who ran “The Hustle” for Countrywide…now…RUNS THE “INDEPENDENT FORECLOSURE REVIEW” DEPARTMENT FOR JPMORGAN CHASE http://foreclosuredefensenationwide.com/

    The former inspector general for TARP has this to say: “Finding out that the person running it for JPMorgan Chase is a person whose conduct in the run-up to financial crisis was allegedly so egregious that she somehow managed to be one of the only people actually named in a case brought by the Department of Justice goes beyond irony…It speaks volumes to the banks’ true intent and lack of concern for homeowners when addressing the harm that they caused during the foreclosure crisis.”

  11. C. Osborn

    “National Mortgage Settlement monitor, Joseph Smith, released his final crediting reports, confirming that all five banks (Wells Fargo, Bank of America, Citi, JPMorgan Chase and Ally, now have now satisfied the consumer relief portion of the foreclosure fraud settlement.

    Puzzled as to how Mr. Smith’s statement (above) could possibly be accurate, when banks such as JPMorgan Chase did NOT report/submit all the foreclosures to the National Mortgage Settlement, as was required by the terms of the Settlement.

  12. 3184inprint

    Based on my experience as a foreclosure defense attorney and based on conversations with colleagues including HUD counselors, in NJ most of the principal forgiveness went to second mortgages. I have had only three cases with substantial principal reduction on first mortgages. However, in each of those cases the settlements were based on three plus years of active (and successful) litigation, and the desire on the part of the lenders/servicers to get rid of the cases. The $25 billion settlement was a canard.

  13. bittersweet

    Hmm, I can testify that Chase did not try very hard to satisfy their settlement agreement. I tried for this last year to get Chase to write down my second lien. I have a Chapter 7 bankruptcy, so my promissory note is void. They have worthless paper on my underwater home. They wanted me to send them my past three tax forms to prove I have little income, and then to write them a letter about why I came to be in this situation. (I called this the “humiliate the borrower tactic”). They ONLY accept this material via fax, and then (of course, as though they were reading your script Dday) said they lost it three times. I finally paid a lawyer to send it to them 3 more times. But mostly they repeatedly demanded that I pay them 10K, which is fair enough. However, I do not have 10K. So the full lien remains on my property. Write downs on worthless paper must be a rich man’s game.

  14. Kokuanani

    DDay, have you written to the esteemed writers for the MSM and pointed out the errors of their lazy, lackluster ways?

    Perhaps also a note to Christ Hayes and/or Rachel Maddow would get some tv coverage of this.

  15. Strayhorse

    $600 for the loss of a 12 year old $250,000 home belonging to my wife, and pre-teen daughter and son that we put blood, sweat and love into is not justice. Countrywide and their executioners, RESCAP, Bank of America, & RUST walked on this – free and clear without consequence. There is no justice in the mortgage industry; it is not trustworthy and it is full of carpetbaggers and scammers who make up the rules as they go along just to line their pockets and fleece hard working American citizens.

  16. StillChased

    The deception and fraud cuts every which way. Amazingly I was offered over $500,000 forgiveness although I refuse to acknowledge JPMorgan Chase as the legitimate servicer/investor/lender. Yup they claim to be all 3. The catch was the property could not be in disrepair and Chase knew the City had taken actions that I was trying to get resolved. They should have worked with me to resolve them per the supposed anti foreclosure and blight laws that City ignored as well. So less than $20,000 would probably have stabilized the property and even given me a chance to get back on my feet. Instead I got the big payout of $2,000 and this $500,000 that wasn’t worth all the paper they send me.

    Let’s not forget the independent “auditors” got $20k per file, Chase rigged the audits and any day now they’re supposed to be telling Sen Warren which unlawful actst they committed.

    We can’t just shrug our shoulders again and say how corrupt this is.

    I was actually reviewing the standards since they’ve been violated in my case. It looks like complaints can be made where borrowers and tenants are being harmed and there could be up to a milloin dollar fines. Every homeowner and every American should be looking at these issues and complaining to their representatives in Congress and in the President’s office. And no more Ivy League/Corporate presidents from either party that sell out our country!

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