McGraw
CHARLESTON - West Virginia Attorney General Darrell McGraw admitted Thursday a $25 billion settlement with the nation's five largest mortgage servicers is not perfect, but said it will help many struggling state homeowners.
McGraw and Assistant Attorney General Heather Connolly appeared on Thursday's 30-minute episode of "The Law Works" on West Virginia PBS to discuss the settlement.
"The Law Works" host Dan Ringer, who has his own law practice in Morgantown, pointed out that many critics of the deal argue that homeowners are simply being bailed out for buying houses they couldn't afford.
"We reviewed the claims and the investigations, and found out that the banks were wrong and that they were going to pay," Connolly said.
"But it's not a perfect settlement."
Connolly said she found that in most, if not all, cases, it was not that homeowners bought too much home.
"The value simply went down, or they experienced some sort of financial hardship," she said.
Last month, McGraw's office announced that as part of the multistate settlement, West Virginia will get more than $33 million in assistance.
DETAILS OF THE DEAL
Of that, an immediate estimated payment of $2,000 will go to each state homeowner who lost his or her home to foreclosure between Jan. 1, 2008 and Dec. 31, 2011.
More than $18 million will go to loan modifications and benefits to state homeowners currently in default or foreclosure.
More than $5 million will go to free refinancing for "underwater" homeowners -- that is, those who are still current on their payments but are struggling.
"That's the beauty of this settlement," Connolly said. "As long as you can show the ability to pay, you don't have to pay for a refinance and banks can't consider that negative equity against you when refinancing."
Of the settlement, another $6 million will go to foreclosure and mortgage assistance and prevention programs in the state.
However, assistance is only available to those with loans held by the five banks -- Wells Fargo & Co., JPMorgan Chase & Co., Citigroup Inc., Ally Financial Inc. and Bank of America Corp.
OTHER PROTECTIONS
McGraw has said the multistate settlement -- which only covers those mortgages held by the five banks, not Fannie Mae or Freddie Mac -- is not a "get out of jail free" card for the banks.
The agreement institutes new protections for homeowners and nationwide reforms to mortgage servicing standards.
"The banks treated those customers who needed modification very badly," Connolly said Thursday.
She explained that when the banks received bailout money from the federal government in 2008, they were required to consider applicants for loan modification.
"Quite frankly, it was a horrendous mess," she said.
"There was no borrower's bill of rights, documents were lost and you never talked to the same person twice."
Basically, the government bailed out the banks, but the banks refused to bail out borrowers, she said.
"Some people were helped, but not many. Maybe less than half," Connolly said.
McGraw noted that of the 5 million homeowners who qualified for modification, only about 1 million actually received some type of relief.
Both Connolly and McGraw said they can't figure out why the banks, who are in the business of selling money and not selling real estate, wouldn't have made more of an effort to modify borrowers' loans.
"It just didn't make good business sense," Connolly said. "It's something we're all still scratching our heads as to why."
However, the settlement still leaves the door open for tough legal remedies for mortgage-related misconduct.
"It's not addressing everything and every wrong that happened with the housing financial crisis," McGraw said Thursday.
"If there are other mistakes or misdirection in the loan process, you're not giving up your rights."
Typically, when an individual receives money in a settlement he or she would have to release all claims against that company.
"No personal causes of action are released, period," McGraw said.
Individuals still have the right, in this case, to hire an attorney and take action against one of the banks, he said.
COMING TO AN AGREEMENT
Talks between the attorneys general, federal officials and the five banks had dragged on for months before a deal was finally struck last month.
"With the housing crisis precipitating three or four years ago, now, the attorneys general were frustrated and angry because of all the fragmentation that existed," McGraw said Thursday.
"So we decided to ban together to do a national program."
The attorney general said it was necessary to recruit the federal government, including the Department of Justice and Department of Housing and Urban Development, because four of the five banks are considered nationally chartered banks.
"And state attorneys general have no jurisdiction over nationally chartered banks," he explained.
The probe began in October 2010 with inquiries into so-called "robosigning" practices.
Later, it broadened into identifying and addressing additional alleged improper foreclosure practices.
Connolly explained that foreclosure documents, which required notarized affidavits, were instead being falsified by the banks.
"The number of foreclosures was so great, the banks couldn't keep up," she said.
Some were simply stamping signatures, she said.
WEST VIRGINIA FORECLOSURES
Though most states -- called judicial foreclosure states -- require such documents before foreclosing, West Virginia is not one of them, Connolly noted.
West Virginia is a deed of trust state.
"You're not entering into a mortgage but a deed of trust," she said. "Basically, if you default on your loan, the bank can auction it off on the courthouse steps."
Ringer explained that a deed of trust means that the bank holds the title in trust so long as the homeowner pays his or her bill.
"They own your property and hold it for you as long as you pay your debt. If you stop doing that, there are some notice requirements, but then they can auction it off," Connolly said.
"It's a pretty easy process for them. There are some protections, of course, but it's still a pretty easy process."
For more information on the settlement or to obtain forms to make a claim, contact the Attorney General's Office at 1-800-368-8808 or visit the office's website, www.wvago.gov.