Mortgage settlement gets mixed reviews

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, Md.

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.

Much of the aid given 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.

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: Bank of America, 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.

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 http://www.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 persuade 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."

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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.

More details are online at http://www.nationalforeclosuresettlement.com/.

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