Knowns and Unknowns in the Attorney General’s Settlement

In response to a question from a follower, Reece Dameron, attorney at St. Ambrose, prepared this synopsis of the AG Settlement.

“Outside St. Ambrose Housing Aid Center last week, Maryland Attorney General Doug Gansler announced a settlement with five major mortgage servicers relating to improper processing of foreclosures between 2009 and 2011.  Broadly speaking, Bank of America, J.P. Morgan Chase, Wells Fargo, Citibank, and Ally Financial (formerly GMAC) agreed to pay approximately $26 billion to assist homeowners in 49 states.  Maryland and Maryland homeowners will receive just about $960 million of the settlement.  Unfortunately, we do not know all the details yet, but we still expect this to help a lot of people in Baltimore.  The money will be divided into four separate funds that will be used for different purposes, and here is what we know so far:

  1.  The first fund is approximately $24 million for homeowners who have lost their home to foreclosure.  The banks will be responsible for seeking out individuals who are eligible, and will be attempting to contact former homeowners.  If you have lost your home to foreclosure, and your former mortgage company sends you a letter or attempts to contact you, it will be important for you to open that letter and respond.  This is a claim fund, and the amount of money each person receives will depend on the number of people who put in a claim.  The Attorney General’s office expects each person who puts in a claim to receive about $1,800.  This money is available with no strings attached—former homeowners will not have to waive any legal claims they have against the banks in order to receive this payment.
  2.  A second fund of $55.9 million to be used for Maryland homeowners who are current in order to help them refinance into lower rate loans.  We know that there are some significant restrictions on who can qualify for a refinance loan under the terms of the settlement.  For example, among other restrictions, the homeowner must be current, have no delinquencies in the past 12 months, have not filed bankruptcy in the past 24 months, have not had their loan modified in 24 months, the loan must be owned by the mortgage servicer, and it cannot be an FHA loan.
  3.  A third fund of $808 million will be used for mortgage modifications and other loss mitigation programs.  At least 30% of the fund is designated to modify mortgages by reducing the principal balance of first position mortgages.  The remainder the money can be used for second mortgages and to help homeowners move by easing short sales, deeds in lieu of foreclosure, and providing transitional assistance to homeowners.  These modifications and assistance will be available to homeowners whose loans are owned by the bank or by a private investor.   Loans owned by Fannie Mae and Freddie Mac are not eligible.

Unfortunately, we do not yet know more about the modification programs or individual homeowners eligibility. The settlement agreement allows the five banks to design their own modification programs, and we can expect each bank to have different eligibility standards.  We also do not yet know when these programs will be functioning, but we expect the modifications to be available sometime in the next three to six months.

Finally, the fourth fund will be a payment of $62.5 million to the State of Maryland, and 10% is earmarked for the State’s general fund.  The remaining $55 million will be provided to the Attorney General’s office and is designated for housing related projects.  We hope the Attorney General uses this money to provide funding for housing counseling agencies and legal services programs for homeowners who are facing foreclosure.

The agreement will be entered as a consent decree in the DC federal district court where it will be overseen by a court appointed administrator.  The banks will have to make regular reports to the administrator, and there are incentives for the banks to distribute the funds quickly.  If the banks do not spend it in three years, it is our understanding that the remainder plus a penalty will be paid directly to the federal government.

In addition to the funds that will be available to help homeowners, the settlement agreement imposes some servicing standards on the banks.  We hope that these will be effective, but we do not yet know exactly what the banks will be required to do.  However, based on summaries provided by the Attorneys General, it appears that the banks will have to follow some significant new rules designed to ensure that they treat homeowners in a fair manner.

While there does appear to be a lot of money coming to Maryland to help our homeowners, we do not yet know all the details.  We are expecting more information to be released in the next few weeks when the consent decree is entered in court, and in the next few months as the mortgage servicers begin to comply with the settlement agreement.

Further information on the agreement can be found at the Attorney General’s website here:  http://www.oag.state.md.us/mortgageSettlement/index.html

And at the National Mortgage Settlement website here:  http://www.nationalforeclosuresettlement.com/

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2 thoughts on “Knowns and Unknowns in the Attorney General’s Settlement”

  1. MANY THANKS FOR YOUR HEP, BUT WHAT HAPPEND WITH THE ONES WHO RECEIVED FOR MODIFICATION ONLY 1 POINT LOWER AND THE BANK EXTENDER THE YEARS TO THE MORTAGE.
    THAT IS A REAL MODIFICATION?
    WE ALSO NEED HELP.
    Isabel.

  2. You are so right, Isabel. This settlement agreement is the first step in having a different conversation about foreclosures. But that is all it is, a conversation. The final details have not been worked out for anyone. This article yesterday talks about a ‘new reality’ for banks, http://www.nytimes.com/2012/03/04/us/when-living-in-limbo-avoids-living-on-the-street.html?_r=1&scp=2&sq=foreclosures&st=cse, they can’t afford to maintain the mountain of vacant properties on their roles.

    No easy answer, no one size fits all. We need to redefine what ‘home’ means in this country.

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