No plan to 'divert' mortgage settlement money away from Md. homeowners, officials say

Maryland's attorney general said Friday that the nearly $60 million from the national mortgage settlement that the state controls would be used to help people "victimized by the egregious conduct of the banks," in contrast with some states that intend to use their shares to plug budget holes.

Attorney General Douglas F. Gansler also said his office is pursuing criminal investigations related to mortgage and foreclosure fraud, though he didn't say whether cases related to the "robo-signing" that prompted the settlement might be filed.

U.S. Department of Housing and Urban Development Secretary Shaun Donovan, in Largo for a meeting Friday with Gansler and housing advocates, praised the attorney general for setting up an advisory committee of elected officials to help decide how the settlement funds could most effectively help homeowners.

"The settlement makes very clear that the intention of this funding is to be used to help homeowners stay in their homes, to help communities recover, and yet we have attorneys general in some states, governors in some states, legislatures, that are trying to divert this funding away from the intended purpose to fill gaps in state budgets," Donovan said.

He pointed to Virginia as an example. The commonwealth's General Assembly — given the right to decide by Virginia's attorney general — is discussing a plan to send the lion's share of its $66 million to local governments for education. Officials there said local budgets took a pummeling as the mortgage crisis reduced property-tax collections.

The mortgage settlement, announced in February, was filed in court last week. It's expected to send nearly $1 billion in total to Maryland — the sixth-largest state payment out of $25 billion nationwide. Most is earmarked for loan modifications such as principal reduction and for refinancing borrowers who are underwater on their mortgages. Victims of "unfair servicing practices" who were foreclosed on between 2008 and last year also will receive payments of $1,800 to $2,000.

Five big banks — Wells Fargo, Bank of America, Citigroup, JPMorgan Chase and Ally Financial — signed the agreement.

Gansler said Friday that state attorneys general are working with HUD on "the next level of banks, to try to encompass all the non-Freddie, Fannie loans out there." The federal government also wants to apply the mortgage servicing standards required by the settlement to financing giants Fannie Mae and Freddie Mac, Gansler said.

The attorneys general inquiry began in late 2010 after news reports that mortgage servicers and some of their contractors routinely signed court affidavits in bulk, not checking for accuracy. Employees forged other employee's signatures. They falsely notarized the documents as if everything had been aboveboard. And then they moved to foreclose.

Two Maryland attorneys representing servicers admitted in court documents that they had directed others to fake their signatures on affidavits, The Baltimore Sun reported in 2010.

Asked about such instances, Gansler said Friday that "we're actively investigating any criminal conduct that occurred in Maryland."

The mortgage settlement has been met with mixed reviews. Reece Dameron, an attorney at the Baltimore-based St. Ambrose Housing Aid Center, said the help for current homeowners looks like a rehash of the Obama administration's criticized Home Affordable Modification Program.

"Six weeks ago, everybody told us, 'This isn't HAMP, this isn't HAMP, this isn't HAMP,'" he said. "And it turns out, it kind of is HAMP. It's just HAMP with some additional incentives. And I think that's about all we can expect out of it."

But Dameron, who attended the closed-door roundtable with Gansler and Donovan, said he is heartened by efforts to get federal, state and community groups working together to stem the effects of foreclosure woes.

Phillip Robinson, an attorney who has worked for years to expand legal representation for Maryland homeowners, was pleased to hear Gansler say Friday that housing counseling would get part of the state's discretionary share of the settlement. Robo-signing revelations forced banks to hit the brakes on foreclosure, he said, but more counseling and legal aid is needed as the machinery restarts.

"Foreclosures are going to increase," Robinson said.