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MAJOR BANKS AGREE TO AN UNPRECEDENTED $25 BILLION SETTLEMENT TO HELP HOMEOWNERS

Nearly $10.6 billion in mortgage relief has made its way to homeowners as part of the $25 billion national settlement reached earlier this year, according to a progress report from the Office of Mortgage Settlement Oversight.

In February, when 49 state attorneys and the five banks — JP Morgan Chase, Bank of America, Ally/GMAC, Wells Fargo and Citibank — settled their dispute, the banks agreed to stop improper foreclosure practices and provide $25 billion in relief for homeowners in the form of principal reductions, refinances and short sales (where a lender agrees to accept a purchase offer for less than is owed on the mortgage, releasing the homeowner from the loan).

According to the terms of the settlement, at least 60 percent of the borrower relief is to be spent on principal reductions.

The problem? Thus far, the bulk of that money — more than 85 percent — has gone to pre-foreclosure (short) sales, which the banks were already doing before the settlement. In fact, according to data firm RealtyTrac, short sales were already on the rise before the settlement took effect in March. In the first quarter of 2012, short sales were up 25 percent year-over-year.

Of the $10.6 billion paid out so far, about $8.7 billion has gone to short sales. Only about $1 billion combined has gone toward mortgage modifications that reduce loan balances and refinances.

The banks have spent nearly $10.6 billion in just a few months, but largely on relief efforts that further their own interests. By focusing their efforts on short sales, the banks skip the arduous foreclosure process — they no longer have to manage, maintain and market a home — and instead make their money right away.

In fact, some banks are offering up to $45,000 to homeowners who opt to avoid the lengthy foreclosure process and sell their homes via short sale: