Mortgage settlement

Deatrice S. Besong is pictured at her home in Upper Marlboro. Bank of America, her servicer, has agreed to reduce her mortgage principal. (Algerina Perna, Baltimore Sun / December 6, 2012)

Deatrice S. Besong says it feels like winning the lottery: Her mortgage servicer recently agreed to reduce her loan by $249,000 next year, saving her $300 a month and erasing the debt overhang that has her owing far more than her house is worth.

"It's a great feeling — it's a feeling of relief," said Besong, who lives in Upper Marlboro in Prince George's County.

Her principal reduction comes courtesy of the national mortgage settlement, a deal struck by state attorneys general, the federal government and the country's five largest loan servicers after allegations of widespread servicing and foreclosure misdeeds. The companies are legally obligated to provide $25 billion in aid, including forgiven debt, and much improved customer service.

But 10 months after the newly announced settlement was hailed as a major step in reforming a broken system, the reviews from homeowners and housing advocates are mixed. Some say the results are not what they'd hoped.

Half the $553 million in aid given to Marylanders through September relates to deals — such as short sales — in which forgiven debt or other assistance came with the requirement to move out. And some consumer advocates say homeowners are still having trouble getting help they appear to qualify for.

"It should be a basic thing to have one or two people who are responsive to a consumer and can keep track of their documents," said Marceline White, executive director of the Maryland Consumer Rights Coalition. "The fact that this isn't working yet is problematic, to say the least, and really contradictory to the intention of the settlement."

Maryland Attorney General Douglas F. Gansler said the servicing standards set down by the settlement are still new, and he expects "better conformity" with time.

"Is it perfect? Absolutely not," he said. "These were banks that were preying upon people in the first place, and they were willing to use robo-signing to throw people out of their homes. It's not as if they've suddenly found the light. Some are better than others. But look, by and large, the new servicing standards have been very well utilized and received."

Gansler also said that more principal reductions are in the works — the settlement requires that a greater portion of aid go to reducing principal than to short sales. But he doesn't consider short sales a bad thing.

"It leaves people without consumer debt, it gets houses occupied in neighborhoods, bolsters prices in those neighborhoods," Gansler said.

Many of the short sales are Bank of America's. The company accounts for about 60 percent of those approved in Maryland through the settlement.

"Bank of America has a huge backlog of severely delinquent loans," said Anne Balcer Norton, Maryland's deputy commissioner of financial regulation. "The relief available isn't the problem. The problem is, in fact, the servicers who have failed to engage borrowers in loss mitigation to this point, and now the only option is short sale."

Bank of America declined to respond directly but referred to an earlier statement about its settlement efforts, saying it is "on track to meeting its total financial obligations within the first year of the three-year agreement."

Of short sales, the company said: "While Bank of America's first goal is to keep customers in their homes, transition becomes the inevitable or chosen route for some customers."

From the start, housing groups warned against seeing the settlement as a cure-all because many homeowners are excluded.

Most obvious are those whose loans aren't owned or serviced by the banks on the list. Besides Bank of America, the companies are Wells Fargo, JPMorgan Chase, Citigroup and Ally Financial, the former GMAC.

Beyond that, a large chunk of borrowers with those servicers are cut off from everything but the promise of better customer service.

The many loans owned or guaranteed by Fannie Mae or Freddie Mac aren't eligible for principal reduction. And though there's no such ban for borrowers with loans insured by the Federal Housing Administration, it's unlikely the banks will target FHA mortgages for aid because that would bring a lower level of settlement credit (but potentially not a lower cost) than reductions to the loans the banks themselves own.

Meanwhile, Fannie, Freddie and FHA borrowers are all blocked from settlement refinancing — for homeowners underwater on their loans — because that relief is only for the bank-owned loans.