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Editorial: Moving forward on foreclosure

Attorney General Douglas F. Gansler took the right step by joining 48 other states in accepting the $26 billion out-of-court settlement with five of the nation’s largest mortgage lenders regarding some of the dubious foreclosure methods they employed during the country’s mortgage crisis.

Maryland’s nearly $1 billion share of the settlement – enough to help as many as 40,000 current and former homeowners – should begin to start flowing soon to “victim borrowers,” as described by U.S. Attorney General Eric H. Holder Jr. The lenders face financial penalties if they do not disperse all of the funds within three years.

The bulk of the money coming Maryland’s way – about $808 million – will be used to reduce principal levels or otherwise modify loans for homeowners in imminent danger of foreclosure. As good as that sounds, it may not cover the state’s approximately 315,000 homeowners who are underwater on their mortgages, according to Reece Dameron, managing attorney in the foreclosure prevention department of Baltimore’s St. Ambrose Housing Aid Center.

About $62 million will go to the state attorney general’s office for housing-related initiatives. Of that, 10 percent is set aside for civil penalties, which Mr. Gansler said would be turned over to the state’s General Fund. The remaining $55.8 million would be earmarked for such projects as housing counseling for homeowners and some forms of legal assistance.

Another pool of about $64 million will assist Maryland homeowners who are not delinquent in their payments but whose debt levels exceed the value of their homes. Banks would guarantee to refinance such loans at a lower interest rate.

Finally, $24 million will go to Maryland homeowners who have lost their homes to foreclosure since 2008. State officials expect each applicant to get between $1,800 and $2,000, but the amount could be higher depending on how many people apply for the aid.

The settlement also includes 42 pages of standards these banks have agreed to follow, including a ban on robo-signing, with federal monitoring and penalties for noncompliance.

These funds will clearly relieve the burden on many. But there is more to do – much more.

This settlement should be the first step – not the last – in a series of state and federal actions if we are to hold the lenders fully accountable for their actions, provide additional help for aggrieved borrowers and adopt safeguards to prevent such abuses from occurring again.

The settlement covers only Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial. Mr. Gansler said negotiations will begin soon to craft a similar settlement with the next nine largest lenders. This needs to happen quickly.

The deal allows states to file criminal charges against the lenders for securitization fraud. We applaud Mr. Gansler’s stated determination to pursue such cases aggressively.

Also, it must be remembered that this settlement does nothing to help borrowers whose loans are owned by Fannie Mae or Freddie Mac. That’s roughly half of the U.S. mortgage market, making it a problem of disturbing dimensions.

With this settlement now behind us, Maryland and the nation must address these other issues expeditiously and decisively. The beleaguered housing industry, a prime driver of the American economy, cannot be restored to good health until its financial house is restored to good order.

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