Seven of the largest mortgage servicers say they have trimmed an average of $614 off monthly payments on over 16,000 loans as part of foreclosure prevention required by a regulatory settlement.
The reductions in principal and interest claimed by the financial institutions were reported Wednesday by the Office of the Comptroller of the Currency in an update of progress to carry out the settlement. The pact, which also includes the Federal Reserve Board, is aimed at addressing widespread errors in how banks serviced loans during the foreclosure crisis.
In addition to providing an update on loan workouts, the OCC said 10 servicers covered by the deal have so far made nearly $3.4 billion in direct cash payments meant for borrowers. The report also offers more details on which servicers had the poorest records in dealing with homeowners during the crisis.
Regulators initially ordered lenders to work with private consultants to do independent reviews of their servicing platforms to identify cases where borrowers were mistreated. But those reviews were effectively abandoned last year following strong criticism of the process by congressional Democrats and the Government Accountability Office.
Instead, 15 top servicers agreed to speed up $3.9 billion in direct settlement payments to compensate eligible borrowers while also devoting an additional $6 billion to foreclosure prevention assistance that must meet certain guidelines. (A 16th servicer, OneWest Bank, chose to continue the review process.)
Six of the servicers opted to satisfy their foreclosure prevention requirements with additional direct payments totaling $92 million, the report said. But seven others—including the biggest banks—are seeking credit through loss mitigation activities on 16,362 loans with a total unpaid balance of over $4 billion.
The OCC said the reported activities are still being evaluated by the agencies, and therefore the seven servicers—Bank of America, Citibank, HSBC, JPMorgan Chase, Sovereign, U.S. Bank and Wells Fargo—have not been awarded credit.
The seven banks said loans receiving workout assistance had an average unpaid balance of $247,264. On average, loan modifications have resulted in an interest rate reduction of 1.96 percentage points to 4.01%, and a drop in debt-to-income ratios of 15 percentage points to 27%, the report said.
"In providing foreclosure prevention assistance, regulators expect the servicers to undertake well-structured loss mitigation efforts focused on foreclosure prevention, with preference given to activities designed to keep eligible borrowers in their homes through affordable, sustainable, and meaningful home preservation actions," the OCC report said.
The report also provided some statistics from the now-abandoned consultant reviews, which offer a glimpse of servicers' foreclosure file error rates in 2009 and 2010. Among 10 OCC-regulated servicers highlighted in the report, PNC had the highest error rate—totaling 23.9%—following completion of 40.9% of the bank’s reviews. U.S. Bank had a reported error rate of 27.1% following completion of 1.2% of the bank’s reviews. Sovereign had an error rate of 25.9% following completion of 6.3% of the bank’s reviews.
"Many errors were technical in nature, did not have a monetary impact for borrowers, and very few of these invalidated foreclosure actions," the OCC report said.