Principal reduction is one of the key adjustments the modification centers around. HAMP currently includes an option for servicers to provide underwater homeowners who are struggling with their payments with a modification that includes principal writedown.

The Treasury comes to back up the administration’s plan by tripling the incentives for such restructurings, paying from 18 to 63 cents on the dollar depending on the degree of change in the LTV (loan-to-value) ratio.

The FHFA (Federal Housing Finance Agency) ordered GSEs to stop employing HAMP’s principal reducing option and the Treasury notified the FHFA that it will pay these same principal reductions incentives to the GSEs if they allow servicers to forgive principal in conjunction with a HAMP modification.

As a response the FHFA issued a statement which says it analyzed the principal reduction offer, but it does not offer any greater benefits than the tools already in use.

However, it will reassess the investor incentives now being offered, taking into consideration the number of eligible loans, operational costs to implement such changes, and the potential effects of incentivizing borrowers to remain current,DsNews cited.

Another change that targets HAMP, is offered for borrowers underwater, with second lien and medical bills. These borrowers will be eligible for an alternative program evaluation with more flexible debt-to-income criteria.

Furthermore, Treasury is ready to expand availability to include investor properties that are currently occupied by a tenant as well as vacant properties for rental use.

In addition, the deadline for HAMP is now December 31, 2013, not 2012 as originally planned.

According to numbers published by the Treasury, HAMP has already helped approximately  (sic!) 900,000 struggling homeowners by offering permanent modification, providing them a median savings of more than $500 a month.

“In addition to foreclosure prevention initiatives such as HAMP, the federal government plans to focus on transitioning foreclosed properties into rental housing, making it possible for responsible homeowners to refinance, and providing hard-hit states with resources to develop targeted relief programs” Tim Massad, Treasury’, assistant secretary added.

Now DsNews reports that a spokesperson for Iowa Attorney General Tom Miller’s office is corroborating the claim, saying that the settlement draft is already available and it is in the hands of the AGs for review.

The Associated Press came out with an update yesterday stating that the settlement terms require as much as $25 billion from the 14 banks participating in the settlement.

The draft also lays down the number of distressed homeowners who will receive about $1,800: 750,000 individuals will be the lucky ones to get this amount from the banks.

Another important point of the settlement is that 1 million homeowners may receive principal reductions.

Although there were rumors suggesting President Barack Obama will announce the successful settlement during his State of the Union today, Miller stated yesterday that the committee did not reach an agreement with five of the nation’s largest servicers, so it will be no official settlement announcement anytime this week.

The more the settlement terms get known, and get wider publicity the more concerns are expressed even among officials: last week Ohio AG Sherrod Brown expressed his concerns the proposed settlement may be too easy on banks.

“A settlement must provide meaningful, widespread relief to Ohio homeowners. Unfortunately, the numbers reported in various media accounts fail to meet this test,” Sherrod wrote. “The proposed principal reduction program must focus on banks settling with their own money, rather than shifting their financial liability to Private Label Securities (PLS) trusts,” he added.

Reuters reported that Brown reiterated his concerns Monday .“Instead of criminal prosecutions, we are talking about not much more than a slap on the wrist,” Brown said. “In many ways, Wall Street isn’t just too big to fail, it’s also too big to jail.”

The independent foreclosure review targets millions of troubled homeowners who faced foreclosure between January 1, 2009 and December 31, 2010, as a result of enforcement actions imposed by the regulators against 14 servicers. This is one direct result of the robo-signing scandal, that surfaced in the fall of 2010.

The OCC already mailed multiple million emails to potential borrowers, but if they did not receive an email with this information, borrowers involved in a foreclosure action during the above mentioned period can request a case review by an independent consultant to determine whether if they suffered financial injury as a result of deficiencies in the foreclosure process.

The mailing process started in November, and eligible borrowers should have received a letter by the end of last year with the details of the process.

What Oregon AG highlights once again is that there is no cost associated with the review program.

Unfortunately, scammers already took the scene and began mailing their own letters to Oregon consumers and offering to conduct “an independent foreclosure home loan review” for a certain fee.

Oregon AG warn state consumers to beware anyone who wants payment to conduct this independent foreclosure review of any other foreclosure prevention program.

“If you receive a letter suggesting that you qualify for compensation or received a grant without having requested an independent review from the federal government, it is a scam,” according to the warning issued by Kroger’s office.

Canceled HAMP trials, that hit 615,000 last year are likely to end up in foreclosure and the percentage of failed trials pushed through foreclosure doubled compared to last year, by reaching 10.6% of the total failed trials. The Treasury data shows that in 2010 forecloses accounted only 4.4% of the total failed HAMP trials.

With foreclosures trending upwards, alternative modification on these loans are exactly the opposite: of the canceled HAMP trials 39.7% went through the bank’s own private programs, down from 45.4% over the same 11 month period, from January to November.

Another highlight of the Treasury report is foreclosure completion of borrowers never accepted into HAMP. The research conducted by the Treasury shows they also trend upwards, as of the 1.8 million seriously delinquent borrowers denied a HAMP trial, 7.6% completed foreclosure, compared to 5% a year prior.

This isn’t particular to any specific servicing company, they all saw jump in foreclosures. For instance CitiGroup had 71,808 HAMP trials canceled, and pushed roughly 13.5% through the foreclosure process as of November 1, up from 3.1% reported in 2010.

Ally Financial reported a 6.4% increase compared to 2010, with its 12.8% recorded last year. At JPMorgan Chase the increase went to 11.3% from 6.2%, while Bank of America reported 9.3% of failed HAMP trials put into foreclosure compared to just 1.9% a year prior.

According to the OCC (Office of the Comptroller of the Currency) 17% of the 108,000 HAMP modifications began in the second quarter of  2010 went 60 or more days delinquent within one year, compared to 31% redefault rate for other private programs, HousingWire reported citing from the report.

The report highlights that this is the moment distressed borrowers should enter the program, as borrowers have a better chance to earn a permanent modification. “Eighty-three percent of eligible homeowners that signed on to HAMO since June 2010 have received a permanent modification, with an average trial period of 3.5 months,” DsNews reported.

Furthermore, the Treasury report goes on an states that HAMP is way better than the mortgage industry’s already functioning modification programs, and the OCC found that the loan mods through HAMP perform extremely well, with 70.5% of the modified loans remaining current, versus 57.6% of other proprietary mods.

Out of the several million homeowners in limbo, there are only 891,542 left, who are currently delinquent and are eligible for HAMP assistance.

Another information coming from Raphael Bostic, HUD assistant secretary emphasizes that HAMP’s Principal Reduction Alternative (PRA) – which by the way requires servicers of non-GSE loans to evaluate program applicants for a principal reduction when the LTV ratio is 115% or higher – is also performing well, as the numbers show: through November 2011, 38,243 permanent PRA mods had been granted, and there are another 15,875 PRA active trials. The list of lenders using the PRA program is led by Bank of America.

The LPS reports that 8.15% of the country’s mortgages is more than 30 days past due, however, it is not yet in foreclosure. This is up from 7.93% recorded at the end of October, 2.7% increase – and the most important thing LPS underscores is that this rise is happening for the first time in four months.

On the annual basis, the numbers look a little bit better, as November’s delinquency rate is down 9.6% from a year prior number.

LPS noted: the rising delinquency rate is due to a buildup of seriously delinquent mortgages.

According to LPS’s recent data, there are 1,890,000 properties with seriously delinquent mortgage payments, while a months prior there were only 1,759,000 properties. This means the borrower is 90 or more days behind on his /her payments, but the case had not yet been referred to foreclosure.

The LPS data also shows a picture with mortgages 30-89 days delinquent. In this case November brought improvements, as the number of properties in October was 2,329,000, while in November LPS recorded only 2,279,000.

According to LPS’ analysis, 4.16 percent of the nation’s mortgages were part of the foreclosure pre-sale inventory in November. That ratio is down 3.0 percent from October but up 2.0 percent from November 2010, and equates to 2,116,000 homes, DsNews reported.

As a summary of its report, LPS notes that the total number of borrowers behind on their payments or in foreclosure as of the end of November hit 6,626,000, which means one in eight residential mortgages.

It is clear now, that both Fannie and Freddie representatives aim to keep borrowers in their home, because it is the better outcome for GSEs, but Edward Seiler, a director in Fannie’s National Servicing Organization stated that sometimes servicers face difficult decisions and sometimes “a borrower just shouldn’t be in that home”.

In this case services must complete the foreclosure process in a timely manner just to clear bad loan from the pipeline. This is how servicers can limit losses for GSEs and taxpayers, Seiler added.

According to Rep. Elijah Cummings, internal records show the GSEs assessed $150 million in fines against servicers in 2010 for not processing foreclosures in timely manner.

“I am concerned that these penalties, at least some of which were ordered by the Federal Housing Finance Agency (FHFA), may have contributed to widespread abuses by mortgage servicing companies and law firms attempting to meet arbitrary deadlines to expedite foreclosures,” Cummings said in a letter sent last month to Edward DeMarco, acting director of FHFA, cited by DsNews.

Cummings cites from an FHFA report issued in June 2010, where it says servicers and supporting personnel were overloaded with the volume of foreclosures, and law firms were not devoting time necessary for their cases.

Clinton and Seiler’s reply was that the foreclosure timeline mandates come into play only after all loss mitigation options are exhausted.

DsNews’ sources note that Fannie Mae and Freddie Mac have synchronized their individual foreclosure timeline requirements with the coordinated Servicing Alignment Initiative that went into effect two months ago, October 1.

“We don’t want the money” from penalties, Clinton said, in a statement. “We want the behavior, in terms of servicer compliance with both foreclosure prevention and foreclosure processing procedures.”

The wrongful foreclosure is based on the Servicemembers Civil Relief Act signed into law in 2003, which protects military members from foreclosure while they are on active duty. According to the OCC data banks may have violated this act by foreclosing on military members during their deployment in Iraq or Afghanistan.

An interesting information published by the Financial Times, says that the number of 5,000 wrongful foreclosure is based on the 10 lender’s estimates. This includes 2,400 foreclosures by Bank of America, 870 by Wells Fargo, 700 by Citigroup, and 575 by OneWest.

Another interesting fact: Bank of American has already reached a settlement with the Department of Justice, and agreed to pay $20 million for its wrongful military foreclosure. The data obtained by Financial Times comes above the settlement agreement signed earlier by the nation’s biggest lender.

“It is hard to see this as anything except a flagrant disregard for a law that has been on the books continuously since the First World War,” Rep. Brad Miller said in a statement regarding the foreclosures. “The Servicemembers Civil Relief Act is an update of the Soldiers and Sailors Civil Relief Act of 1940.”

“The flagrant failure to pursue criminal charges in the face of flagrant violations of the criminal law is destroying American’s faith in their government and democracy,” Miller added. “In a democracy, no one is too big to prosecute.”

The initial deal – at the time when California AG was still part of the committee – required banksters to pay out $25 billion for their illegal activities: $5 billion in cash and another $20 billion in refinancings and modifications, including principal reductions.

Now, according to unnamed sources cited by the Wall Street Journal, this amount can shrink to $18.5 billion. Some say a settlement without California would be impossible, as California is one of the hardest hit states by the foreclosure crisis.

However, this threat might be a key factor in bringing back California AG, Kamala Harris back to the negotiation table. In other words, they are pressuring her to come back. Just imagine how many hands will show to Harris if the settlement’s final figure will remain this amount.

Reuters says its sources close to the settlement also expressed hope that they could still lure California.

According to the Journal, officials are discussing limiting settlement funds aimed at principal reductions and refinancing to states who do not participate in the final settlement.

But one thing all of these newspapers cited by DsNews forget to mention: the reason why Kamala Harris and other AGs left the negotiations table.

“It became clear to me that California was being asked for a broader release of claims than we can accept and to excuse conduct that has not been adequately investigated,” Harris said at the time.

With the highest rate of default in the nation, California was a key participant of the negotiations.

Even after California, New York and Delaware stepped back from this deal, Iowa Attorney General, Tom Miller, head of the attorneys general negotiating committee, backed by the Obama administration was able to push the settlement through with a single aim: to pursue a settlement in a timely manner.