Published on: Thursday, February 16, 2012

By Maria-Pia Negro

Maryland’s share of the $26 billion multistate settlement, totaling almost $1 billion, was the sixth highest compensation out of the participant states, said Maryland Attorney General Douglas F. Gansler.

“Anything that can help ease the burden of Maryland families is a step in the right direction,” said Delegate Craig J. Zucker, D-District 14.

The money would aid borrowers at risk of foreclosure, lower interest rates, prevent foreclosures and pay restitution to homeowners who lost their homes because of mortgage-related abuses.

The banks — Wells Fargo, Bank of America, J.P. Morgan Chase, Ally Financial and Citigroup — would have three years to complete delivering the principal amount of the settlement money.

Out of the $26 billion, about $17 billion would go to help lower the loan balance for homeowners whose homes are underwater, meaning they owe more than their homes are worth.

In the case of Maryland, this would represent $62.5 million going toward legal assistance, especially to counties like Prince George’s and Baltimore that were severely affected by foreclosures, Gansler said at a press conference.

Another $24 million would be distributed to Maryland homeowners who lost their homes to foreclosure between September of 2008 and 2011.

Financial compensations for each homeowner would be worth between $1,800 and $2,000.

Homeowners who purchased a mortgage from a different bank or lender, such as Freddie Mac or Fannie Mae, are not eligible for financial compensation.

The impact this measure would have on consumers remains uncertain.

The settlement ended a 14-month lawsuit against these five major banks, which control 60 percent of the mortgage services that allegedly committed foreclosure abuses against homebuyers.

Abuses include accusation of deceiving homeowners by using an electronic mortgage registry and faulty documentation.

“This is more for show than for impact,” said Clifford Rossi, executive-in-residence at the University of Maryland and Tyser Teaching fellow. “Banks certainly own a great deal of responsibility for their dealing with borrowers. There is no question about that.”

The housing industry has now almost $700 billion in underwater equity, and homeowners trying to catch up on their mortgage often need thousands of dollars to recover.

“The $26 billion agreement is unlikely to impact the housing market in the short run,” said Ethan Cohen-Cole, former financial economist at the Federal Reserve Bank of Boston.

Cohen-Cole said that measure seems too little to homeowners who were paying their mortgage on time but were foreclosed upon illegally.

“I wouldn’t be upset if someone sends me $2,000 check, but that is a small comfort if I lost my house,” he said.

Maryland and other states forfeited the right to pursue legal claims against the banks regarding mortgage servicing as part of the deal. However, as Gansler pointed out, individuals can still sue the banks.

That, said Cohen-Cole, is one of the major benefits of the settlement.

“Individuals thrown out of their house illegally, even though things are settled with the attorney general, you can still join with other individuals and file a class-action suit,” he said.

Rossi said that it is possible that the settlement would give borrowers the confidence to start the recovery process. 

“Banks and landlords would be more willing to work with homeowners (who are delinquent in their payments) than they had been in the past,” he said.

“The banks have learned a temporary lesson,” Rossi said. “Whether or not they learned a lesson for the long term remains to be seen.”

Homeowners who believe they may qualify for part of the settlement may call the Maryland Hope Hotline at 1-877-462-7555 or visit the Maryland Hope website.