Mortgage settlement: A good deal for Maryland

Maryland Attorney General Douglas F. Gansler is right to sign on to the multi-state settlement with the nation's five largest banks over some aspects of the faulty procedures they used to foreclose on homes during the mortgage crisis. The state stands to gain nearly $1 billion to help struggling homeowners and those who have already been foreclosed on, and it gives up relatively little in return. Most important of all, settling means the state can get help now — before it's too late for thousands of homeowners.

Maryland's share of the deal is expected to be about $960 million, enough to help as many as 40,000 current or former homeowners in the state. And the ultimate value of the settlement may grow. This agreement covers just the five largest mortgage lenders (Bank of America, Wells Fargo, JPMorgan Chase, Citigroup and Ally Financial), but the nation's attorneys general plan now to seek to fold another nine banks into the deal.

The bulk of the money — about $808 million — will go toward modifying the terms of loans for homeowners who are at risk of default. That means reductions of both principal and interest, and the settlement includes significant penalties for the banks if they don't actually succeed in modifying loans totaling that amount within the next three years. For thousands of Marylanders, that could make the difference between keeping their homes and losing them.

Another $64 million will specifically help those who are current on their payments but owe more than their houses are worth, and $62 million will go to the Attorney General's Office. Mr. Gansler says about 10 percent of that will likely be sent to Maryland's general fund to compensate it for part of the state's losses related to the mortgage crisis. The rest, he says, will likely be used to pay for counseling services for homeowners trying to renegotiate the terms of their settlements.

Finally, about $24 million will go to direct cash assistance to those who have already lost their homes to foreclosure, compensation for a variety of wrongs the banks committed during the servicing of those loans. Though it certainly won't undo the damage of foreclosure, an unexpected check of $1,800-$2,000 surely won't hurt.

In addition, the settlement includes 42 pages of standards of conduct the banks agree to follow in the future, including providing a single point of contact for homeowners seeking to modify their loans, a prohibition on so-called "robo-signing" and a requirement that the banks have adequate staffing to handle homeowners' inquiries. The whole settlement includes federal monitoring and penalties if the banks don't comply.

And what do we give up by agreeing to settle? Not that much. The state retains the right to pursue criminal cases — and Mr. Gansler said his office is investigating allegations of abuse in the foreclosure process here. The settlement does not abridge any individuals' right to sue over specific damages they suffered — even if they take the money offered in the settlement. And it doesn't prevent the state from pursuing claims related to the bundling of bad mortgages into securities that were sold to investors — including state pension funds.

The states that agreed to participate in the settlement give up any further right to sue over claims stemming from the origination or servicing of the loans. But given the limited role states have in banking regulation, and the novelty of the claims they are pursuing, going to court would be no sure thing. It's possible that a state could get a better deal by opting out of the deal and going to court, but a clause in the agreement stipulates that if a state does so, the existing participants in the settlement get the benefits of those better terms.

Critics of the settlement say it is not enough to turn around the nation's ailing housing market, and that is almost certainly true. For one thing, it will not help borrowers whose loans are owned by Fannie Mae or Freddie Mac — about half of the market. But the question before Maryland and the other states was not whether this or any settlement could erase the losses brought on by the mortgage crisis. The question was whether it could have held out and gotten a better deal.

If Maryland had gone out on its own or joined a few other holdout states in further legal action, a judgment would have been years away under a best-case scenario. If there's one thing this settlement makes clear, it's that much more can be done to help those who are at risk of losing their homes than can be done to help those who already have. Settling now speeds the day when the foreclosure crisis will be behind us, and that's good for all Maryland homeowners, not just those who fell prey to predatory lending practices.

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