Although the $25 billion national mortgage settlement's goal is to keep people in their homes, big banks are doing much better at ushering Florida homeowners out, as a new report shows short sales dwarfing other forms of relief as lenders' atonement of choice.
Under the settlement, five of the nation's biggest banks must grant billions in relief through measures like refinancing mortgages and reducing loan amounts, letting homeowners dodge foreclosure while making payments they could afford.
Yet in the settlement's first months, banks have plunked away at their required relief mostly by approving short sales, in which a home is sold for less than the owner owes, according to a report Monday from settlement monitor Joseph Smith.
Between March and September, banks approved $2.2 billion in Florida short sales, or about 60 percent of the state's $3.6 billion in relief, the report shows.
Short sales totaled $1 billion more in Florida than principal forgiveness for first and second mortgages, deficiency waivers and refinancing — combined. And many of those short sales would have happened anyway.
"They're getting credit for doing what they were already doing, and what the market was dictating," St. Petersburg foreclosure attorney Matt Weidner said. "They're still throwing people out onto the street that could be making a mortgage payment."
Short sales are cheaper and easier for banks than foreclosures — there are no carrying costs, and buyers come to them — but more damaging to homeowners than reducing the mortgage principal, which housing advocates call the most effective tool for homeowners in distress.
Short sellers must still leave their home, watch their credit plummet and potentially face a deficiency judgment for the amount they have yet to pay. Many then turn to renting or are frozen out of the market as banks remain stingy about handing out new loans.
Under the settlement, banks must give 60 percent of their nationwide relief through loan writedowns.
In Florida, those reductions are closer to about 20 percent. Half of the $26 billion in relief nationwide so far has gone toward short sales.
Banks said that they are meeting the settlement requirements at a rapid pace, and that the different forms of offered relief, including short sales, are getting homeowners the help they need.
"Florida Bank of America customers qualifying for the principal reduction program are seeing very real benefits," Dan Frahm, a spokesman for Bank of America, wrote in an e-mail to the Times. "This and other programs we offer are putting tens of thousands of Florida homeowners in a much stronger financial position for the future."
Attorney General Pam Bondi said in a statement Monday that Florida's relief so far "is a promising indication that obtaining a minimum commitment from the banks has been effective."
The banks extended an average of $73,000 in relief to nearly 49,000 Floridians, the report shows. Writedowns of first and second mortgages accounted for about a quarter of those deals.
"The banks are pushing everything towards the short sales," Keller Williams agent Steve Capen said. "There have been some principal reductions here and there, but it's been at such a random level that you can't even talk about it."
Monday's progress numbers were based on reports submitted by the banks and have not yet been confirmed or approved, the report said.
The settlement between the U.S. Department of Justice, state attorneys general and five of the nation's biggest banks — Ally Financial, Bank of America, Citigroup, JPMorgan Chase and Wells Fargo — was reached in February after banks were discovered spitting out shoddy or forged documents en masse to speed up foreclosures.
That practice, called robo signing, and others were banned last month as part of more than 300 new servicing standards for how banks treat homeowners and loans.
Florida's relief numbers could change as $1.3 billion in loan modifications offered or approved by banks snake through the pipeline. Floridians who lost their home to foreclosure between 2008 and 2011 have until January to file claims under the settlement.
But not everyone is getting by without issue. More than 300 Floridians have filed complaints with the Office of Mortgage Settlement Oversight over settlement issues.
"There's nothing more frustrating than a homeowner who has been working for years to get a (loan) modification and can't, only for the bank to turn around and sell the house for cents on the dollar … to an investor who will rent it out to somebody," Weidner said. "Where's the legitimacy in that?"
Contact Drew Harwell at (727) 893-8252 or [email protected]