A year ago, when the nation’s biggest banks settled with state and federal officials over claims of foreclosure abuses, the public was led to believe that the deal would allow millions of hard-pressed borrowers to escape the threat of foreclosure. It still hasn’t happened.

A third progress report was issued recently by the monitor of the settlement, which, among its terms, required the banks to grant $25 billion worth of mortgage relief, much of it by reducing the principal balances on troubled loans. The report showed that through the end of 2012, 71,000 borrowers had their primary mortgages modified, versus 170,000 who received help on their second mortgages, including home equity loans.

Both types of assistance can help struggling borrowers — to a point. But as Jessica Silver-Greenberg reported in The Times, housing advocates say that in many cases, banks are not helping with troubled primary mortgages, which often leaves the homeowners facing foreclosure. Instead, the banks are forgiving the second mortgages, which allows them to say that they have met their obligations under the settlement.

In other words, banks are structuring the debt relief in ways designed to tidy up their balance sheets, rather than to keep as many people from losing their homes as possible. Banks often do not own the primary mortgages; they only service them for investors who own them. But they do often hold second liens on their books. In general, the holder of a second lien gets nothing when a home is worth less than the mortgage balance or is sold in foreclosure. But by forgiving the second liens, the bank at least gets credit for “helping” the borrower.

In the report, the settlement monitor, Joseph Smith, said the banks still had much work to do on the borrowers’ behalf. We’ll believe it when we see it.

New York Times