Mortgage Write-Downs Total $19 Billion Thus Far

by 25 Feb 2013

American borrowers owe approximately $19 billion less on their mortgages, and they expect to continue paring their debt as 2013 continues. Those mortgage write-downs are part of the landmark National Mortgage Foreclosure Settlement of 2012, an agreement executed by the Big Five mortgage lenders in the United States: Ally, Bank of America, Citi, JP Morgan Chase, and Wells Fargo.

The historical settlement agreement was the resolution of multiple claims by borrowers of dubious foreclosure practices carried on by the Big Five lenders. The scandalous claims, which included allegations of robo-signing, dual-tracking and other nefarious methods whereby these bailed-out banks attempted to quickly increase their real estate owned (REO) portfolios by accelerating foreclosures. One of the most constructive terms of the settlement agreement is the offer to write down billions of dollars from underwater mortgages.

Slashing Mortgage Balances

Although rising home prices have eased on the widespread negative equity experienced by borrowers across the United States, the Big Five banks have managed to reduce mortgages by average $82,668. This statistic serves to underscore the gravity of the situation with regard to the housing market; more than 500,000 borrowers have avoided foreclosure and are now making monthly mortgage principal and interest payments on loans that are not higher than the value of their properties.

As the banks continue to comply with the terms of the settlement agreement, another half a million borrowers are expected to qualify for these special refinance transactions. The terms of the agreement also call for improved management of short sales, which have accounted for almost $20 billion over the last 12 months. This has also reduced the number of pending foreclosures, of which more than 10 million remain across the nation.

Waiting On Additional Mortgage Relief

As expected, the greatest contributor to these write-downs has been Bank of America, which infamously acquired the notorious subprime lender Countrywide in 2008. Bank of America has thus far written down mortgage balances totaling $13.5 billion. Ally, the mortgage lender formerly known as GMAC Mortgage, wrote down $238 million from underwater mortgages and is now in full compliance with that specific term of the settlement agreement.

Other mortgage lenders are not yet off the hook with regard to their settlement obligations. In January, 13 American banks settled claims alleging improper foreclosures to the tune of $9.3 billion. These include some of the Big Five plus regional banks and mortgage investment firms.


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