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Housing market settlement: Not just about punishment

The landmark $25 billion settlement with the five largest servicers is also about helping those harmed.

By JIM PUZZANGHERA Los Angeles Times

In unveiling a landmark $25 billion settlement of investigations of foreclosure abuses, federal and state officials said Thursday they were holding the nation's five largest mortgage servicers accountable for the problems while also providing help to up to 2 million homeowners affected by the collapse of the housing market.

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Linda Ganguzza has lived in her New Milford, N.J., home for more than 30 years, but she has not made a mortgage payment in almost three years.

Don Smith/The Record/MCT

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A HOMEOWNER'S LAMENT: MOVE? STAY? TALK?

HACKENSACK, N.J. - Almost three years after she last paid the mortgage, Linda Ganguzza remains in her New Milford, N.J., home - one of many troubled homeowners caught in a drawn-out foreclosure process.

"I have no idea where I stand, how much longer I have," said Ganguzza, a 58-year-old nurse, who says her divorce left her unable to afford the home where she raised three children. "Do I move, do I hang tough, do I talk to the bank?"

While the settlement announced Thursday was meant to help some homeowners in trouble like Ganguzza, it wasn't clear how she would be affected.

In the meantime, delayed foreclosures like Ganguzza's will continue to create an ambiguous situation for homeowners and lenders for some time.

Homeowners are free of monthly housing payments while they await eviction, allowing many to pay other bills. But they live with the stress of knowing they ultimately will lose their homes, and the knowledge that their credit rating has been badly damaged. At the same time, lenders are stuck with assets that are losing value and are not producing any income.

Ganguzza has lived in her house for three decades. She said she and her ex-husband borrowed against the house to help pay for their children's education and pay down credit card debt. After they split, her income and alimony were "definitely not enough for me to carry the house," she said.

She owes almost $400,000 to Wells Fargo, but has not made a payment in three years.

One time, during a contentious call with the lender, she asked whether they wanted her to leave immediately. She said they told her no. "We would prefer that houses have people living in them," she said she was told. Vacant houses are subject to vandalism, burst pipes and other problems, and they tend to lower property values in the area.

A Wells Fargo spokesman said he could not comment on Ganguzza's case because of confidentiality issues. But he said the company works hard to help customers avoid foreclosure when possible.

"We are committed to exploring options...," said the spokesman, Jason Menke.

-- The Record (Hackensack N.J.)

"This isn't just about punishing banks for their irresponsible behavior," Housing and Urban Development Secretary Shaun Donovan said at a Washington news conference. "It's also about requiring them to help the people they harmed by funding efforts to help homeowners stay in their homes."

The deal between federal officials, attorneys general from California and 48 other states, and the five servicers - Bank of America Corp., JPMorgan Chase Co., Wells Fargo Co., Citigroup Inc. and Ally Financial Inc. - was completed after more than a year of negotiations to settle investigations into foreclosure improprieties, such as robo-signing.

"Today we pick up another piece of the wreckage caused by the foreclosure crisis," said Illinois Attorney General Lisa Madigan.

The settlement sets new national standards for mortgage servicing, to be overseen by an independent monitor, that officials said would end the frustrating runarounds by consumers who try to get their mortgages modified or make other changes.

But the deal goes beyond the foreclosure problems to try to stabilize the struggling housing market. In the second-largest multi-state settlement ever, the five servicers have committed to pump billions of dollars into programs to partially compensate people who lost their homes and to help current homeowners avoid that fate.

The deal includes $17 billion for relief to about 1 million current homeowners, the majority of which would come through reductions in the principal they owe on their mortgages. Another $5 billion in cash would go directly to California and the states as restitution for foreclosure paperwork problems and other improprieties by the servicers in the foreclosure process.

About $1.5 billion of that state money will be distributed directly to people whose homes were foreclosed from 2008 through 2011 and who faced some operational problem, such as lost paperwork. Officials estimated hundreds of thousands of homeowners would get money as part of that settlement, though the average check would be $1,500 and $2,000.

Asked about the relatively small amount, Iowa Attorney General Tom Miller said it is just one part of the settlement and is more than most of those homeowners could have expected to receive on their own.

"That homeowner that couldn't get one dollar and they're getting a check for $1,500, they're not going to tell us we settled too cheap," said Miller, who led the negotiations for the state attorneys general.

Miller also said he expected that the large amount of write-downs on principal, which will take place as part of the settlement, will lead the practice - resisted so far by servicers - to become commonplace as banks and investors see it is not the money-loser they have feared. California Attorney General Kamala D. Harris, who was one of the last state holdouts, said the settlement will directly benefit hundreds of thousands of Californians.

Federal and state officials will try to get another nine large mortgage servicers to sign on to the settlement, which could increase the deal to $30 billion. The servicers will get various credits for actions they take as part of the settlement.

The complex series of credits is designed to encourage the servicers to make payments over the next year to speed assistance to struggling homeowners and quickly aid the housing market. Under the deal with the five largest servicers, the credits could result in a total of $40 billion in relief to homeowners. If the other nine servicers sign on to the deal, the total relief could reach $45 billion.

U.S. Attorney General Eric Holder said that while the settlement goes beyond the foreclosure abuses, it does not prevent federal and state officials from pursuing investigations into actions that led to the collapse of the housing market.