North Carolina Receives Aid for Short Sales

In April, 49 state attorney general offices and several federal agencies reached a $25 billion settlement with 5 major lenders (Wells Fargo, Bank of America, Citi, Chase, and Ally/GMAC).  The settlement was the result of suspect lending practices and automated foreclosure processes (“robosigning”).

The state of North Carolina received approximately $338 million from the settlement.  According to the Charlotte News & Observer, the state’s funds are to be allocated as follows:

• $179.5 million for principal reduction, short sales or other assistance to struggling homeowners.

• $63.6 million for housing counselors, legal advice, fraud prosecution, plus fines that will go to public schools.

• $61.5 million to refinance loans at lower rates for homeowners current on payments.

• $33.6 million to foreclosure victims.

In order to monitor banks’ progress in providing this relief to borrowers, The Office of Mortgage Settlement Oversight was created, and it issued a progress report in August.  The data in the report documents mortgage relief efforts from March 1, 2012 to June 30, 2012.  In North Carolina, a majority of the funds has been used for short sales, as opposed to other pre-foreclosure alternatives (such as principal reductions or other loan modification arrangements).  A snapshot of how the funds have been used in North Carolina is available here:

So far, borrowers have received over $78 million in “relief,” with more than $58 million coming in the form of short sales.  Statewide, 815 short sales have been completed under the settlement, with the average borrower receiving $72,281 in relief.  Interestingly, very little of the funds has been used to make permanent modifications to 1st mortgages.  For example, Bank of America completed zero 1st mortgage permanent loan modifications, and Wells Fargo completed only 15.  Clearly, the major lenders are focusing more on short sales (therefore selling the property) than making loan modifications.

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