Monitor Credits Bank of America with $1.19 Billion Toward Settlement Obligation

jar-of-cashIndependent monitor Eric Green reported on Friday that Bank of America has been credited with approximately $1.19 billion toward the $7 billion (17 percent) in consumer relief the bank agreed to provide as part of the August 2014 settlement with the Department of Justice over the selling of toxic mortgage-backed securities.

In his second of the monitor’s required reports under the settlement agreement, Green said he conditionally approved $1,181,390,703 in consumer relief for Bank of America for the first quarter of 2015, along with $8,948,684 worth of credit in his initial report released in February, for a combined total of $1,190,339,386 in consumer relief for the bank out of the $7 billion prescribed by the settlement. The deadline for Bank of America to provide the remaining $5.81 billion, or 83 percent of the obligation, is August 31, 2018.

Green reported that most of the $1.181 billion credit Bank of America was credited with in Q1 was based on 2,938 first lien principal forgiveness loan modifications. Those modifications, which include principal forgiveness, interest rate reduction, and bringing loans current without penalty, are intended to make mortgages more affordable for struggling homeowners.

“The report demonstrates we are extending meaningful relief to homeowners who, despite the economic recovery most Americans have felt, have continued to struggle financially,” Bank of America spokesman Dan Frahm said. “The monitor has reviewed and certified $1.2 billion of the crediting in line with the bank’s May submission. Combined with about $5 billion in additional anticipated crediting for recently completed activity and relief in process, we are progressing well toward our total commitment. We strongly encourage customers who have received information from the bank about these programs to carefully consider accepting this relief and realizing their benefits.”

According to Green’s report, evidence that the consumer relief provided by Bank of America is positively impacting homeowners includes:

  • Borrowers have reduced their monthly mortgage payment by an average of 38 percent, from $1,666 down to $1,030.
  • Pre-modification interest rate has been reduced from 5.5 percent to 2.18 percent.
  • The share of underwater borrowers prior to receiving the modifications was 93 percent; the reduction in loan principal has resulted in that share being reduced to less than 2 percent.
  • Fifty-six percent of the modification credit Bank of America earned was for loans modified in federally-designated “Hardest Hit Areas.”
  • The average unpaid balance on loans, excluding unpaid fees and interest, prior to the modifications was $216,527. According to Green, the average principal forgiveness for these loans (including unpaid fees and interest) exceeds $140,000.
  • Twenty-seven percent of the modifications occurred in the six states that participated in the settlement, and overall the modifications occurred in 47 states plus the District of Columbia.

“This kind of modification can make a critical difference in the lives of affected homeowners struggling to stay in homes burdened by loans made during the height of the property bubble and devastated by the financial crisis,” Green said.

On August 20, 2014, Bank of America settled with the Department of Justice and six states for a record $16.65 billion to resolve claims that the bank as well as its Countrywide, Merrill Lynch, and First Franklin divisions packaged and sold toxic mortgage-backed securities and collateralized debt obligations in the years leading up to the financial crisis.

Under the settlement agreement, Bank of America agreed to pay $9.16 billion directly to federal agencies and six states; $7 billion in consumer relief, which may include first lien principal forgiveness or forbearance, second lien extinguishment, and community reinvestment and neighborhood stabilization; and $490 million for the payment of consumer tax liability as a result of consumer relief.

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