Big banks are finding a way to benefit from what was supposed to be their punishment in the robo-signing scandal.
In Florida, they have spent 75 percent of $7.7 billion in settlement outlays approving short sales and forgiving home-equity loans, earning credit for debts they were unlikely to collect or sales that would have happened anyway, a monitor's report released Thursday shows.
Only about 15 percent of the money has gone toward principal reductions or refinancings that would keep Floridians in their homes, the report states.
"This is providing very little actual relief to consumers," St. Petersburg foreclosure attorney Matt Weidner said. "It's not keeping people in Florida in their homes. It's writing off phantom debt (banks) weren't collecting anyway."
Bank of America spokesman Rick Simon said the spending provided "meaningful relief to borrowers by eliminating debt." More than 100,000 Floridians have been offered an average of $75,000 in debt forgiveness or other aid, and thousands of potential loan modifications are still being processed, according to the report based on bank data.
But consumer advocates and attorneys have criticized the relief as sidestepping the settlement's goals. Since April, the report said, Floridians have filed nearly 600 complaints over modifications, customer service and other issues.
Banks' relief of choice so far has been short sales, in which banks allow underwater homeowners to sell their home for less than they owe. Much like foreclosures, short sales torpedo credit and require people to leave their homes.
Banks approved $3.2 billion in short sales for more than 29,000 Floridians under the settlement, the report shows. But because banks are increasingly approving short sales as less-costly alternatives to foreclosure, many of those sales might have happened either way.
More than 36,000 Floridians, the largest share of people who received settlement letters, were offered forgiveness of home-equity loans. Many homeowners took out those loans, called second mortgages, to pay for big costs like home repairs during the housing bubble.
But banks had already assumed many of these loans would have to be written off. When a bank seizes a foreclosed home, the holder of the first mortgage typically earns any auction proceeds, while the second mortgage holder gets nothing. And homeowners forgiven their second-mortgage debt remain at risk of foreclosure due to late first mortgages.
Florida was one of the biggest beneficiaries of the $25 billion National Mortgage Settlement. Five of the nation's biggest banks — Ally Financial, Bank of America, Citigroup, JPMorgan Chase and Wells Fargo — settled with state attorneys general and the U.S. Department of Justice in February 2012 to resolve allegations banks were speeding up foreclosures by pumping out unverified filings. New standards for banks passed last year banned "robo-signing" and similar abuses.
Banks' focusing relief on short sales and second mortgages was also reflected across the country, accounting for 73 percent of $42 billion spent nationwide last year. Each dollar forgiven through those forms of relief only nets banks partial credit.
Critics, like Sen. Elizabeth Warren, D-Mass., have accused federal regulators of opting for settlements that help protect banks from scrutiny.
"Every time there is a settlement and not a trial," she said last week, "it means we didn't have the days and days and days of testimony about what those financial institutions were up to."
Contact Drew Harwell at (727) 893-8252 or [email protected]