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.

"Fannie, Freddie, FHA, that's the vast majority of loans we work on," said Dan Ellis, executive director of Neighborhood Housing Services of Baltimore, echoing many other local foreclosure-prevention groups.

On top of all that, homeowners who have any mortgage debt forgiven after this month will have to pay federal taxes on the amount as if it were income. That is, unless Congress extends a temporary provision to waive such payments for mortgage debts of $2 million or less.

Banking, real estate and consumer groups are pressing for the move, warning that financially strapped homeowners will be hard-pressed to accept mortgage aid that comes with a big tax bill.

"Congress should make an extension of this law a top priority in order to help as many homeowners facing foreclosure as possible," said the heads of the Financial Services Roundtable, the Center for Responsible Lending and the Housing Policy Council in joint letters to House and Senate leaders.

Owen Jarvis, an attorney who works on foreclosure prevention at St. Ambrose Housing Aid Center in Baltimore, said the settlement results aren't perfect but still strike him as praiseworthy.

"I think overall … it's a fantastic benefit for homeowners," he said.

For instance, principal reduction had been "very rare and now is less rare," Jarvis said. One of his clients had an entire home equity line of credit — more than $100,000 — forgiven by Bank of America.

But White, with the consumer rights coalition, was hoping to see much more of that type of assistance. She's concerned, too, that there's no way to tell where in Maryland the settlement help is going — to the hardest-hit neighborhoods or to homeowners whose big balances will help the servicers get to the mandated dollar amount the fastest. (Maryland's share of the $25 billion is about $957 million.)

The consumer rights coalition and other groups have called on the settlement's monitor to require data from the servicers that would categorize aid by ZIP code. They've also asked state officials to include this requirement in any future settlements with other servicers.

Another agreement may indeed be on the way. "We have a group that is working with the next nine biggest banks," Gansler said.

There's a deadline fast approaching for one category of aid in the current settlement: People foreclosed on between 2008 and 2011 could qualify for a payment of at least $840 — probably more — but only if they apply by Jan. 18. The amount of restitution will rise if not all those who are eligible apply.

Applicants who received a claim form can file online at nationalmortgagesettlementclaim.com. Those who think they're eligible and haven't received a form should call the settlement administrator at 866-430-8358.

Besong, the Upper Marlboro resident, lives in a part of the state where the housing bust and foreclosure crisis hit residents — and home values — particularly hard. But because she had two loan modifications after divorce reduced her household income, she said, she couldn't convince the customer-service representative assigned to her earlier this year that she was eligible for settlement aid.

After several months of trying, she wrote a letter of complaint to her servicer. A new representative was assigned. A few weeks later, she had her approval letter in hand.

Now she's trying to get the word out to other homeowners: Apply for the help before the money's gone.

"This worked for me," she said. "If it worked for me, it could work for you."

jhopkins@baltsun.com

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Mortgage-settlement help



Some homeowners struggling with their loan payments or unable to refinance into today's low rates could be eligible for help from the national mortgage settlement. Also eligible are some who lost their homes to foreclosure between 2008 and 2011.

The aid applies only to loans owned or serviced by Bank of America, Wells Fargo, JPMorgan Chase, Citigroup or Ally Financial (the former GMAC), and only if those loans are not owned or guaranteed by Fannie Mae or Freddie Mac. Loans insured by the Federal Housing Administration aren't technically ineligible for settlement principal reduction, but the rules make it unlikely that many FHA loans will see such aid.

Maryland officials, concerned that homeowners might fall prey to settlement scammers charging fees, recommend seeking free help from a housing counselor to navigate the process. The state has lists and other details at mdhope.org.

More details: nationalforeclosuresettlement.com

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