February 9, 2012; Source: Baltimore Sun | Baltimore expects to receive almost a billion dollars as its share of the $25 billion settlement against five major banks—Bank of America, Wells Fargo, JPMorgan Chase, Citigroup and Ally Financial—for abusive mortgage practices, and that sum may grow to an estimated $30 billion as the nation’s attorneys general seek to include nine other banks in the deal. The money from the settlement is to be used to help homeowners threatened with foreclosure. Of Baltimore’s expected $960 million, $880 million will be used to reduce the principle and interest of existing loans.

Under the agreement, the banks will be penalized if they drag their feet on loan modification. We’ll see if that works. Another $64 million will be used to help homeowners who owe more on their houses than they are worth, and $24 million will be used for compensatory assistance to people who have already lost their homes – less than a pittance. Finally, the settlement includes a full 42 pages of standards of conduct that the five banks have agreed to honor. The standards include providing a single point of contact for homeowners seeking to modify their loans and a prohibition on “robo-signing,” the practice of signing large volumes of mortgages without even reading them. There is also an outside monitor and heavy penalties for not following these standards. We’ll see if that works.

The settlement is being criticized by some as too small, and indeed it pales next to the one fact that 11 million households now owe mortgages that are about $750 billion more than their homes are worth. Let’s see…so the 25 billion is dwarfed 30 fold by just one of the many losses suffered in this debacle. 11 million underwater homeowners and approximately 3.5 million homeowners who are either 90 days or more late in making payments or are in foreclosure but only up to 1 million homeowners could see their principle reduced, while another 750,000 could refinance.One coalition of grassroots groups called the settlement a “paltry down payment”.

This settlement is seen as being in the best interests of the banks in that it limits their exposure and it will help them clear their books of the two million homes they now have in various stages of foreclosure. According to this article in the L.A. Times this will, in effect, speed up the foreclosure process and temporarily force housing prices down yet further but experts expect that they will rise from there, thus “restarting” the housing market. Mark Zandi of Moody’s Analytics is quoted as saying,“I think there’ll be more price weakness, because we’ll see the number of distressed sales pick up.”

NPQ figures there will be an overwhelming wave of work that will need to be done in the near future by nonprofit housing organizations in terms of monitoring  the behavior of the banks and providing counseling and advocacy to distressed homeowners.

The settlement excludes anyone whose loans are owned by Fannie May or Freddie Mac.

Keep your eye out here at NPQ for more analysis on this issue.—Ruth McCambridge