Mortgage Abuse Settlement With Giant Banks Means Nearly $200M For Connecticut

A $25 billion landmark settlement with the nation’s five largest mortgage servicers over the foreclosure “robo-signing” scandal — including nearly $200 million for Connecticut — will bring much-needed help to struggling homeowners and dramatic change in how all servicers deal with their customers.

The agreement is the largest state-federal settlement in history, touched off by a scandal in 2010 that exposed abuses and fraud in nationwide mortgage servicing practices. Negotiations with the servicers — Bank of America, Citibank, JPMorgan Chase, Wells Fargo and Ally Bank, formerly GMAC — spanned 15 months, and the settlement could climb as high as $30 billion if nine other, smaller servicers are later included.

The settlement, which could pull thousands of borrowers in Connecticut back from the brink of losing their homes, is raising hopes among those who have struggled — some for years — to win changes to the terms of their mortgages, including a reduction in loan principal. The servicers have three years to meet the terms of the settlement.

Michael Drena, a window cleaner from Bloomfield, has wrangled with Bank of America for nearly three years to change the terms of his mortgage after a divorce and a downturn in his business left him cash-strapped.

His frustration with the bank has steadily mounted. He has submitted at least 10 sets of documents and made more than 200 calls about the mortgage on the 1920s Dutch Colonial he bought five years ago.

“Most people would have given up by now,” Drena said. “I’m hoping that this will be something productive for homeowners, but I’m worried there is going to be too much red tape.”

Drena said he finally did win a loan modification on a trial basis late last year, but his new monthly payment, $1,978 — including escrow for taxes and insurance — is just $128 less than what he previously paid.

“That isn’t that much,” Drena said.

The robo-signing scandal erupted nationally in the fall of 2010 when it came to light that major servicers were signing off on foreclosure documents without verifying their accuracy, spending just minutes on each. The scandal subsequently shed light on how difficult it was for borrowers to communicate with servicers, often being bounced from person to person and repeatedly being asked to submit the same documents.

The monetary settlement announced Thursday does not apply to all borrowers, just to the serviced mortgages that are held by the five banks. Home loans that are held by mortgage giants Fannie Mae and Freddie Mac, which represent about 50 percent of U.S. mortgages, aren’t included.

But the set of new rules that is also part of the settlement provides the first framework for governing how mortgage servicers deal with customers and will apply to all mortgages that are serviced in the future.

“The money piece gets most of the attention,” said Connecticut Attorney General George Jepsen, who stood directly behind U.S. Attorney General Eric Holder at the Thursday morning announcement inWashington, D.C. “But we are of the belief that the new servicing standards are at least as important.”

Jepsen, who was on the negotiating team for the settlement, said those standards include a single point of contact for borrowers and the elimination of the “dual-track” foreclosures, in which servicers might be working out new loan terms but, at the same time, pursuing a foreclosure. The rules also require servicers to obtain reasonably priced homeowner’s insurance if the borrower doesn’t have any.

Under the terms of the agreement, Connecticut borrowers whose mortgages are held and serviced by the five banks will get an estimated $119 million in mortgage modifications, including reduction in principal.

Mortgages originated by the five banks but later sold to investors do not qualify for the settlement, according to Matthew Budzik, one of the two assistant attorneys general in Connecticut who were involved in the settlement negotiations.

In addition, Connecticut borrowers who lost their homes to foreclosures by the five banks would qualify for an estimated $1,500 to $2,000 cash payment. Homeowners would have to complete a form to claim poor servicing, but it would not require much more than checking off a box, Budzik said. Homes repossessed between Jan. 1, 2008, and Dec. 31, 2011, would qualify.

Connecticut took a leading role in the investigation of the robo-signing scandal under former Attorney General Richard Blumenthal, who is now a U.S. senator.

U.S. Attorney General Eric Holder said the settlement also provides the means to enforce the rules and, if necessary, levy fines.

“Our nation’s leading mortgage servicers will be required to follow a new set of standards, which will be overseen by an independent monitor — and will be enforceable in federal court,” Holder said.

Bank of America, parent of Connecticut’s largest bank, issued this statement Thursday: “We believe this settlement will help provide additional support for homeowners who need assistance, brings more certainty to the housing market and aligns our on-going commitment to help rebuild our neighborhoods and get the housing market on track.”

Although the foreclosure crisis hasn’t been as severe in Connecticut as in other states, it is taking a toll on the local housing market, keeping sale prices down as foreclosures compete with owner-occupied homes.

Connecticut housing advocates Thursday praised the settlement, which, for Connecticut, also includes $27 million for foreclosure-prevention programs, including the mediation program run by the courts.

“Just the notion that you have to work with people, and there are a set of rules, that’s something new,” said Jeff Gentes, a staff attorney at the Connecticut Fair Housing Center in Hartford, who works on foreclosure cases.

Foreclosure attorneys echoed those sentiments, saying that the rules will force banks to make timely decisions and improve communication.

“People have just been left in limbo,” said Keith J. Fuller, an Enfield foreclosure attorney. “Banks have to streamline and let the people know, ‘yes or no.'”

While consumer groups praised the rule changes, a high-profile citizens’ action group in Connecticut swiftly criticized the monetary settlement as not going far enough.

“The mortgage fraud settlement being announced today is a tiny drop in a big bucket,” said Tom Swan, executive director of the Connecticut Citizens Action Group. “It does not do justice for the millions of homeowners who lost their homes or hold the banks fully accountable for their crimes. For homeowners who were defrauded and lost their homes, $2,000 is too little, too late.”

In Connecticut, homeowners who are “underwater” — owing more than their property is now worth — but current on their mortgages could now qualify for refinancing from the five banks as a result of the settlement. The settlement provides $36 million for Connecticut.

In the majority of cases, the mortgage servicers will contact borrowers directly regarding loan modification and refinance options. A settlement administrator hired by the state attorneys general may also contact borrowers.

In Bloomfield, Drena said he is hoping that he now will qualify for a principal reduction on his mortgage that will significantly bring down his monthly payment. He’s had to rent out rooms in his house to make the new monthly mortgage payment. “This has been my whole life for two, two-and-a-half years,” Drena said.

Borrowers may contact their mortgage servicer at these numbers: Bank of America: 877-488-7814; Citigroup: 866-272-4749; JPMorgan Chase: 866-372-6901; Ally/GMAC: 800-766-4622; Wells Fargo: 800-288-3212.

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