Maryland’s Attorney General Approves of $26 Billion Mortgage Settlement
The multistate mortgage settlement reached after the national housing crisis proved to be a win-win for all involved, said Maryland Attorney General Douglas F. Gansler, who discussed the outcome of the mortgage crisis during the American Bar Association Banking Law Committee Fall Meeting.
“It actually was a great deal for everyone, including the banks,” Gansler said. “The banks are getting money on some of these homes that they otherwise would not be getting.”
After U.S. home sale prices peaked in mid-2006 and began their steep decline, the country saw a rise in mortgage delinquencies and foreclosures. That crisis prompted attorneys general nationwide to conduct an investigation of bank lending practices, which ultimately resulted in a $26 billion settlement.
As part of the deal, the attorneys general dismissed some charges against the banks, including the states’ interests in the origination of the foreclosure crisis, servicing claims, and charges that the banks signed off on thousands of documents without verifying information.
The deal took 14 months to complete, which included the investigation and signing, because the banks sought to have securitization claims waived by the states, Gansler said.
“There were different victims — not homeowners, but pension funds and other funds — that lost money when the banks packaged these subprime loans together, knowing they wouldn’t be satisfied, and sold them to investors,” Gansler said.
Several charges such as criminal, fair housing and individual claims were not waived, Gansler said.
Bank of America Corp., Citibank, JP Morgan Chase & Co., Wells Fargo & Co., and GMAC Mortgage have an incentive to pay out the settlement as quickly as possible, Gansler said. Each year the debt is not paid, the amount will increase; and in the third year, the banks will pay the federal government.
Maryland, one of the states hit hardest by the mortgage crisis, received nearly $1 billion in the settlement.
The money will be divided into three pools. The banks will not give the majority of the funds in the form of actual cash; instead, the settlement dollars will be distributed by providing lower interest rates and loan modifications to homeowners, Gansler said.
The largest portion, $809 million, will help residents on the brink of foreclosure.
“Those are people who are behind,” Gansler said. “The idea is to keep people in their homes who were already in their homes.”
Approximately $64 million is allocated to residents who have managed to keep their homes, but struggle monthly to pay their mortgages.
“They have been barely able to make it up to this point,” Gansler said. “Now they are able to make lower monthly payments.”
People who completely lost their homes are entitled to $1,800 to $2,000 cash. Additional money will go to housing-related projects in the state.
In order to inform residents of their eligibility, the state has set up educational workshops.
The settlement also included 42 pages of new service standards that have been put into place to avoid this kind of crisis in the future, Gansler said.