Maryland joins nationwide mortgage settlement

Nearly $1 billion will help state residents

February 09, 2012|By Hanah Cho, The Baltimore Sun

Maryland Attorney General Douglas F. Gansler has agreed to join other states in a $25 billion settlement with the nation's five largest mortgage servicers — a landmark agreement that would provide nearly $1 billion in aid to Maryland homeowners who were victims of shoddy and illegal foreclosure paperwork practices.

The banks — Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial — would pay to help homeowners across the country who have lost their homes to foreclosure and those who are still at risk of foreclosure. The federal government and 49 states reached the settlement announced Thursday. Oklahoma did not join the deal.

Maryland's share, nearly $1 billion, is expected to help 40,000 former or current homeowners, and would be funneled to various housing programs, including those offering mortgage relief, officials said. Many homeowners who lost their homes to foreclosure would also receive some of the money.

Gansler said the settlement was the right move considering the amount of financial assistance for Maryland homeowners.

"It's a lot of money going directly to the people who need it," he said. "Who am I to say to someone who's about to lose their home, 'I have a better deal for you, just hang in there for five years and we might be able to get some money'?"

During the housing bubble, getting a mortgage was easy, and many borrowers bought homes that cost more than they could afford. The ensuing real estate crash and financial crisis created a wave of foreclosures that also brought to light allegations of misconduct by loan servicers — though some people who lost their homes were not victims of any misconduct.

Governor Martin O'Malley said in a statement Thursday that the settlement was "welcome news to the thousands of Marylanders who have faced or are facing the risk of losing their home."

Along with the Maryland Attorney General, Maryland financial regulators have signed onto the deal.

Officials with the Maryland attorney general said the agreement was an important first step in dealing with the foreclosure crisis, but some Marylanders say the settlement was not publicly vetted before attorneys general signed on. They also worry about lax oversight.

"There is no ability for local people to do anything to enforce the banks to abide by the spirit and letter of this agreement," said Charles Shafer, a consumer law professor at the University of Baltimore Law School, who was among those briefed on the settlement by Gansler.

In recent weeks, some Marylanders have urged Gansler not to join the settlement, calling on him instead to pursue investigations and lawsuits against mortgage servicers.

But Gansler called the mortgage deal the "biggest thing to happen" for attorneys general since Maryland and other states settled with tobacco companies over marketing tactics in 1998.

The settlement provides four pots of money for Maryland, though the exact amounts have not been calculated:

•About $800 million for reducing the principal of homeowners' mortgages and other loan modification assistance for homeowners at risk of foreclosure.

•An estimated $60 million to pay for interest-rate reductions for borrowers who are up to date on mortgage payments but owe more than their houses are worth.

•About $60 million to be directed to the Maryland attorney general's office for housing-related projects. Up to 10 percent, considered to be a civil penalty, would be directed to the state's general fund, while a portion would be used to pay for housing counselors and legal assistance for homeowners.

The office would be especially focused on helping homeowners in Prince George's County, hit the hardest by foreclosures in Maryland, and Baltimore City, Gansler said.

•An estimated $25 million to provide checks for $1,800 to $2,000 to homeowners who lost homes to foreclosure.

In exchange, Gansler and other state attorneys general would give up civil liability claims against the banks for mortgage origination and servicing misconduct. However, homeowners who participate in the settlement will still have the right to sue the banks for improper acts during the foreclosure process.

The settlement does not prohibit states from going after banks for the improper packaging of mortgages into securities that later went bad, nor does it prevent officials from pursuing criminal cases, Gansler said.

Banks have not commented on details of the nationwide settlement talks.

It's not clear when homeowners will start getting financial aid or loan modifications because the programs need to be set up first, Gansler said. But once the mechanism is in place, banks will have an incentive to distribute the money or help homeowners stay in their homes within the first year of what is expected to be a three-year rollout of the settlement.

The next step, he said, was to pursue the second tier of mortgage servicers for their role in improper foreclosure practices.

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