There is a four-foot-tall pile of papers next to Connecticut Assistant Attorney General Matthew Budzik’s desk that draws wisecracks from his staff. It’s a monument, of sorts, to the $25 billion mortgage settlement hammered out earlier this year by attorneys general from 49 states and five big banks implicated in the 2010 “robo-signing” foreclosure scandal that triggered a wave of reforms.
Budzik played a large role in that effort and the stack of documents include his original revisions and corrections to the historic 300-page agreement. Later this month, Budzik and representatives of seven other AG’s offices are being recognized for this accomplishment with Department of Justice Distinguished Service Awards — an honor rarely bestowed on state officials.
Connecticut Attorney General George Jepsen praised Budzik, along with Assistant Attorney General Joseph Chambers and others on the banking division staff. “We’re just six months into the implementation of the settlement, but already more than 2,000 distressed homeowners [in Connecticut] have received benefits, with thousands more to come,” said Jepsen. “The role Matt played was enormous, in making it possible.”
The other state AGs offices to be honored are Iowa, Illinois, Texas, Florida, North Carolina and Colorado. Those seven, along with Connecticut, spearheaded the settlement negotiations.
At the Hartford-based Fair Housing Center, foreclosure prevention lawyer Jeff Gentes said the settlement’s remedies are working better than had been expected. “In the first half year, Connecticut homeowners have already received about what they were projected to receive over the first three years of the settlement. There was $155 million projected, and in the first six months, I think they received $149 million,” he said. That money goes to homeowners in the form of principal reductions on loans that make up part of their mortgage modification agreements.
Gentes predicts that Connecticut will continue to reap above-expected dividends because the state has worked hard to spread the word to the public about the program. “The benefits of Matt Budzik’s work redound to the nation and the state,” he said.
Big Bank Opposition
The settlement is with five national mortgage servicing companies, GMAC (Ally), Wells Fargo, Citibank, Bank of America and J.P.Morgan. In Connecticut, Bank of America, Wells Fargo and Citi are the leading mortgage holders.
With the exception of Ally, all are national banks. Initially, they questioned whether state AGs could tell them what to do. It had never happened before, Budzik said.
On the other hand, a long history of consumer protection work gave Budzik’s group confidence. “State AGs are the first line of defense when it comes to consumer issues,” he said. “We get calls all the time, telling us the problems. We felt we had a very good handle on how the banks’ activities were affecting average borrowers and consumers.”
As a result, the AGs’ developed clear ideas about how to fix these problems, said Budzik.
One part of the settlement is what Jepsen calls the “rough justice” payments to people who have already lost their homes to foreclosure. Starting in the first quarter of 2013, they will receive $1,500 to $2,000 in damages for the banks’ flawed foreclosure processes, which had little or no human attention, and hence were dubbed “robo-signings.”
Mortgage processors’ servicing standards were also overhauled, so that a homeowner involved in a mortgage modification process would not simultaneously face court foreclosure motions. This controversial “dual track” approach had confused and alarmed borrowers. Another key reform mandated that each consumer have a single contact person at the bank, to stop borrowers from being shuttled to different officers each time they call to discuss their troubled mortgage.
Budzik said banks resisted new requirements, saying they would drive up costs and ultimately make loans more expensive. “Our response generally was that we are only asking you to treat your customers properly and properly run your banks. In most cases, there wasn’t a cost to what we were asking them to do – it was simply good management,” Budzik said.
During the negotiations, in the summer of 2011, the banks had what Budzik describes as a “sea change” in their thinking. They realized that keeping homeowners in their homes and making mortgage payments, even at a modified rate, was less costly than foreclosure. The ultimate $25 billion agreement for loan modifications was one of the final steps in the settlement. It had Budzik up until 2 a.m. the day before it was signed, hammering out final details.
The state AGs aren’t resting on their laurels. Another branch of their partnership with the Justice Department is a Residential Mortgage-Backed Securities Working Group. Through the New York attorney general’s office, the group filed a suit this month against JP Morgan Chase & Co. It targets the JPMorgan unit Bear Stearns & Co., alleging illegal practices in the packaging and sale of residential mortgage-backed securities. This kind of financial product helped cause the overall market instability that led to the 2008 Wall Street meltdown.
In recent years, Gentes, the foreclosure prevention lawyer, has followed the efforts of Budzik, Chambers and the AG’s office in working to prevent unnecessary foreclosures. He considers the Justice Department award well-deserved.
“Put it this way,” he said, “It’s nice when you’re at a point in your career when you already know you’ve helped thousands of people through the work that you’ve done. Those guys can go home at night, knowing that’s what they’re doing. •