Mortgage settlement has shortcomings, critics say

As the federal government and 49 states signed a landmark mortgage relief settlement Thursday, housing advocates and others pointed to shortcomings and raised questions about how the $25 billion plan would be able to provide relief to nearly 2 million current or former homeowners across the country.

The nation's five largest loan servicers agreed to provide mortgage reductions, refinancing and other loan modification help to homeowners hurt by the housing collapse. Maryland is expected to receive nearly $1 billion, the sixth-largest share of the total amount, because it was among the states hardest hit by the wave of foreclosures, state Attorney General Douglas F. Gansler said.

Federal and state officials promoted the settlement as a significant step in holding the banks accountable for abusive and illegal foreclosure paperwork practices — and as one that will provide much-needed relief to struggling homeowners.

"This is the beginning, not the end, for banks to step up to the plate and take real responsibility for their role in the housing crisis," said Marceline White, executive director of the Maryland Consumer Rights Coalition, who called the settlement a balancing act between getting help for homeowners now or at some point in the future.

"It's important to maybe toast this as a first step [but] not certainly pop open the champagne," she said.

Other housing advocates and real estate experts said the settlement money represented a mere sliver of the $700 billion in negative equity in the nation's housing market. In Maryland, nearly one in four homeowners with a mortgage owed more on their loans than their homes were worth this past fall. That's about 315,000 Marylanders with "underwater" homes, according to real estate data firm CoreLogic.

"Will $1,800 to $2,000 help homeowners? It's chump change," said Sharon New, a food and health educator from Annapolis who was referring to the amount borrowers may receive under the settlement. New was part of a local effort pushing Gansler not to sign on to a deal that gives banks any immunity from liability for their actions.

Other critics of the deal noted that it excludes loans owned by government-controlled Freddie Mac and Fannie Mae — agencies that hold about half of the nation's mortgages.

"There have been many people affected by foreclosures, and we want to have as many of them as possible be in a position to take advantage of the settlement," said Rep. Elijah E. Cummings, a Baltimore Democrat who has been pushing the regulator of the housing giants Freddie and Fannie to write down the principal on underwater mortgages.

"That's the problem when you have most of the people coming under" Freddie and Fannie, said Cummings, who nonetheless called Thursday's deal a major step forward.

Neighborhood Assistance Corp. of America, a nonprofit housing counseling agency, said it, too, was disappointed that the agreement did not address government-owned or -issued mortgages, including those backed by the Federal Housing Administration and the Department of Veterans Affairs.

Reece Dameron, an attorney with St. Ambrose Housing Aid Center, Baltimore's largest nonprofit foreclosure-prevention organization, was concerned that some of its low- to moderate-income Baltimore clients would be ineligible for relief under the settlement because they hold FHA loans.

Still, Dameron said, the settlement money was a "new tool" that housing counselors could use to help homeowners at risk of losing their homes.

"In some cases, it will give us more leverage," said Dameron, noting that the five banks also agreed to new servicing and foreclosure standards under the settlement.

Of the $960 million that Maryland is expected to receive under the agreement, about $808 million would be used to pay for principal reductions and other mortgage relief.

An additional $64 million would be used for interest-rate reductions for borrowers who are up to date on their mortgage payments but still owe more than their houses are worth. Also, $62.5 million would be used to hire more housing counselors and for legal assistance.

The remaining $24 million would be distributed — in checks for $1,800 to $2,000 — to homeowners who lost homes to foreclosure.

Since January 2006, mortgage firms have foreclosed on about 49,600 homes in Maryland, according to CoreLogic.

The banks — Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial — along with settlement administrators and attorneys general will work together to identify eligible homeowners over the next six to nine months, according to officials.

Citi said it would begin implementing the settlement's programs in March, while Wells Fargo said customers who may qualify for refinancing would be sent letters after that.

Maryland officials expect the settlement to help 40,000 current or former homeowners. That number could go up or down depending on how many eligible homeowners — especially those who have already lost their homes — are identified.

Gansler's office plans to launch an outreach and marketing campaign to help banks locate eligible homeowners, officials said.

Mark Kaufman, Maryland's commissioner of financial regulation, said the new requirements addressing shoddy mortgage servicing practices were important.

As part of the settlement, banks agreed to numerous steps to improve the servicing and foreclosure process.

"The ability to regulate the standards and elevate the conduct in the industry is significant for us," said Kaufman, a member of the executive committee for the national settlement effort. "It will help everyone. It's a long time coming."

The inquiry by the attorneys general began in October 2010 amid revelations of widespread "robo-signing" — the mass production of foreclosure court documents with forged signatures and bogus notarizations.

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

The deal 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.

The settlement

•Homeowners whose loans are serviced by Bank of America, JPMorgan Chase, Wells Fargo, Citigroup or Ally Financial may be eligible for mortgage relief, loan modifications or refinancing help.

•Borrowers who lost their homes to foreclosure between Jan. 1, 2008, and Dec. 31, 2011, may qualify for a cash payment of up to $2,000.

•Homeowners whose loans are owned or backed by Fannie Mae or Freddie Mac are not eligible.

•Homeowners will not know immediately whether they qualify because it will take time to launch the three-year rollout of the settlement, officials say.

•Over the next 30 to 60 days, settlement negotiators are expected to select an administrator to oversee the deal's logistics.

•Over the next six to nine months, the administrator, attorneys general and mortgage servicers will work to identify eligible homeowners. Those eligible will receive letters.

Source:; federal and state officials