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Maryland joins pending multibillion-dollar foreclosure settlement

Maryland stands to receive between $895 million and $959 million in benefits under a pending multibillion-dollar nationwide settlement with the five largest mortgage lenders over alleged foreclosure abuses, Attorney General Douglas F. Gansler said Wednesday.

Attorney General Douglas F. Gansler

Gansler joined the ranks of more than 40 attorneys general who have signed on to the settlement so far.

“How do you walk away from [nearly] a billion dollars?” he said of Maryland’s share.

The final terms could be announced as early as Thursday. They will vary depending on whether California decides to participate or negotiate a separate agreement.

Nationwide, the deal will be worth $25 billion with California on board and $19 billion without.

If California joins, Maryland’s share would be $959 million — the sixth highest of any state. If not, it would be at least $895 million.

Video: Gansler talks about the settlement

While he’s glad Maryland will get a large share, Gansler said, it reflects the sobering reality that the state was so hard-hit by the foreclosure crisis.

The tentative nationwide settlement stems from alleged abuses that occurred after the housing bubble burst about five years ago and foreclosures became rampant. These alleged abuses included employees at foreclosure processing companies signing papers they had not read or faking the signatures of authorized agents to speed the process.

The five lenders — Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial — have already agreed to the settlement. States that opt for the settlement agree to forgo civil litigation against the banks with respect to the origination and servicing of past mortgage loans.

Bank of America said in a statement Wednesday afternoon that “we’re interested in finding a path forward with a comprehensive settlement that benefits homeowners and communities.”

Spokespeople for Citigroup and Ally Financial declined to comment on the settlement until a formal announcement of the agreement is made. Spokespeople for JPMorgan Chase and Wells Fargo did not return telephone messages seeking comment.

The deal, which applies only to those five lenders, bars the attorneys general from pursuing civil actions over loan origination and servicing. It would not bar the states from mounting criminal investigations; nor would it bar individuals from suing.

Gansler said the settlement could serve as template for a potential agreement with nine other major mortgage lenders who were not party to this accord.

“It’s a first step, but it’s a giant first step,” he said.

Four pools

The state’s share of the money will be divided into four pools, Gansler and Assistant Attorney General Matthew Fader said in an interview.

In the first pool, $62 million will go to the attorney general’s office for housing-related initiatives. Of that, 10 percent is set aside for civil penalties, which 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.

Reece Dameron, managing attorney in the foreclosure prevention department of the Baltimore-based St. Ambrose Housing Aid Center, said Gansler briefed him on the settlement last week. The center last year counseled about 1,200 families facing foreclosure or default on their homes.

“My hope is that it will significantly change how the banks are behaving,” Dameron said. “Part of the settlement includes some new servicing standards and that’s a crucial part of it. We’re looking forward to seeing those new servicing standards.

Dameron said the Maryland portion of the settlement may seem big, but may not stretch far enough because about 315,000 homeowners in Maryland are underwater on their mortgages, statistics show.

“I am very happy to hear we’re hearing $800 million for principal modification, and that will go a long way toward helping, but I am not sure it’s a large enough number,” he said. “We should run through $808 million rather quickly.”

Of the other three pools, the lion’s share would go toward relieving the financial burden on homeowners in imminent risk of foreclosure by reducing their principal levels or otherwise modifying loans, Gansler said. (That total comes to $808.4 million if California participates, or $760.9 million without California.

Another pool would assist Maryland homeowners who are not delinquent in their payments but whose debt levels exceed the value of their homes, commonly referred to as being “under water.” Banks would guarantee to refinance such loans at a lower interest rate. This pool accounts for $53.9 million to $64 million, again, depending on California’s participation.

Finally, $24 million ($18.3 million without California) would go to Maryland homeowners who have lost their homes to foreclosure since 2008. The expectation is that each applicant would get between $1,800 and $2,000, but the total amount must be paid, Fader said; so, the amount could go higher if fewer people participate.

Dameron said St. Ambrose would begin an aggressive outreach to its clients and other Maryland homeowners in foreclosure crisis.

“If people have lost their house to foreclosure and there’s money for them, I want to see them get that money; $2,000 might not seem like a lot if you’ve lost your house, but it helps,” he said. “It’s not a perfect deal, but there’s no reason for us to wait. It was good for Maryland to sign on and take the money and help Maryland homeowners now.”

Gansler said the agreement is notable because payment “goes directly” to the people harmed by the banks.

“It’s an enormous achievement,” Gansler said. “I think it’s monumental.”

Also, he said, the national settlement can only get better if the non-participating states negotiate their own deals. To the extent the non-participants get more favorable terms, the national settlement will also be adjusted upward, Gansler said.

Gansler said he signed the settlement on Monday, but did not intend to go public with that fact until the national settlement was announced. He changed his mind on Wednesday.

The banks admitted no wrongdoing in agreeing to the settlement, but “$25 billion is a pretty strong admission of responsibility,” Gansler said. “That’s a pretty strong admission that something went awry.”

Deborah A. Ford, who chairs the Department of Economics, Finance & Management Science at the University of Baltimore’s Merrick School of Business, said the settlement was welcome, but cautioned it must be examined closely.

“There’s a lot of questions,” Ford said. “I’d have to see exactly how it’s going to work. We’ve had a lot of programs in the past few years designed to help homeowners refinance and none have seemed to work, so before I would say this is great, I’d want to know exactly how this is going to work. It’s just so complicated.”

The nationwide settlement, 16 months in the making, would be the largest involving a single industry since a $206 billion multistate tobacco deal between 46 states and the four largest cigarette companies in 1998. Florida, Minnesota, Mississippi and Texas did not join the nationwide tobacco settlement, having reached their own accords with the industry.

Daily Record business writer Melody Simmons contributed to this article.