Some who lost homes feel forgotten in foreclosure settlements

When word came that Chrysler was closing its Newark auto plant in 2009, it seemed plain to many employees that financial trouble could be on the horizon.

So Jeff and Robbin Brown went to their mortgage company – CitiMortgage – in early 2010 to see if they could make different arrangements until Jeff, a millwright, found new work.

They were turned away. The Browns said bank officers told them such a discussion was premature. A homeowner had to be 90 days in arrears before any changes could be discussed. But when that milestone arrived, the rug went out from under them.

A series of frustrating attempts to renegotiate terms went nowhere. The Browns paid one mortgage loan assistance company about $3,000 to help them work through the process, but they might as well have buried that money in the front yard. No assistance was rendered. The couple say they became victims of a scam when they needed assistance the most.

Soon they got notice they would have to leave the $325,000 five-bedroom dream house they built on Old Baltimore Pike – the one with Jeff's hobby garage in the back and the almost-finished treehouse with siding that matched the main house. The one they had saved up for and loved for eight years.

They asked for more time, but the Browns say their request for a two-week extension – to allow them to recover from a setback with Robbin's multiple sclerosis and find a place to store antiques and other valuable items that wouldn't fit in the rental where they were moving – was denied. They left those items behind, and rushed to move out.

These kinds of stories inspired attorneys general nationwide to investigate the nation's largest banks. What former Delaware Attorney General Beau Biden and his colleagues found was that the banks burned homeowners and investors by lowering lending standards and offering higher-risk mortgage products, a combination that caused the United States housing bubble to burst in 2008.

As a result, Biden secured multiple settlements totaling $185 million – $100 million of which went directly to Delawareans either as a check in the mail or mortgage modifications, refinancing or loan forgiveness.

One settlement gave 1,297 Delaware homeowners an average of $56,120 in mortgage modifications. But these are homeowners who managed to keep their houses.

For the 32,000 homeowners who were foreclosed on, only a little over a thousand have received checks in the mail, and when those checks arrived, they were usually for less than $1,500 and were too late to make a difference. The rest, so far, have received nothing.

"The money was received because of wrongdoing – to somebody and somebodies," said Penny Dryden, executive director of the nonprofit Community Housing and Empowerment Connections. "But the victim is just forgotten. ... Some are homeless, some are living with families, they can't even get a rental. They're fighting for their lives. It's a tragedy for Delaware to be in this position."

And, as Attorney General Matt Denn pushes a proposal to spend the remaining $36.6 million he inherited from some of those settlements on troubled schools and Wilmington's violent streets, these families are losing hope that they'll ever be made whole.

"They [state officials] are trying to act like it never happened, but they don't know how they affected me and my family and other families," Robbin Brown said. "Doesn't anybody know that they affected us in a big way?"

It wasn't long ago that the 2008 economic crisis – the worst since the Great Depression – threatened to collapse the nation's largest financial institutions, undercut the stock market worldwide and gut the housing market.

In a statement sent by Biden to The News Journal in late January, he explained the resulting mortgage crisis was no accident.

"Remember, the mortgage crisis was a man-made disaster that didn't have to happen," Biden said. "The financial system only works when everyone plays by the rules – and when the rules are broken, public servants need to fight for accountability."

It became clear to Biden and attorneys in the Fraud and Consumer Protection Division, a then-little-known unit in his office, that they needed to investigate and hold the financial institutions accountable.

It was no easy task. In 2011, Biden became the first attorney general to sue the Mortgage Electronic Registration Systems, a Virginia-based private national electronic mortgage registry.

MERS was formed by the nation's top mortgage lenders, including Bank of America, Wells Fargo, Fannie Mae and Freddie Mac, in 1995 to bypass county recording offices and minimize paperwork to rapidly bundle and sell residential mortgage-backed securities to investors and pension funds.

The suit and hours of oral arguments in Chancery Court painted a picture of the confusion MERS caused homeowners.

MERS represented to the public that it was the legal title owner on a third of all mortgages recorded in Delaware between 2006 and 2010. But, in reality it only oversaw a database of these mortgages.

When homeowners were being foreclosed on, it was by MERS, not the bank who owned the title. That confused homeowners who did not know who to call or how to defend themselves, according to the suit.

These practices touched communities across the state, especially in the most vulnerable ZIP codes in and around Wilmington, the suit says. The result was devastating – declining home prices, vacant properties, increased police and service calls, and a decreased tax base.

"While the subprime mortgage crisis began in the middle of the last decade due to the irresponsibility of many players, including banks, borrowers, brokers and regulators, today that crisis has merged with the broader economic downturn to create hardship across the entire social and economic spectrum of our state," the 2011 suit says.

In July 2012, a settlement was reached and MERS agreed to reform its practices, making it easier for homeowners to find out who owns their mortgage. The state agreed to not pursue monetary penalties against MERS, but received $2.5 million in a different settlement in February 2012 from the five largest servicing banks who were member owners of MERS and who were not named in the MERS suit.

That $2.5 million was the seed money that allowed Delaware to start programs for homeowners and continue pursuing settlements.

"That's an ongoing fight, and there are cases my office brought that haven't been resolved yet," Biden told The News Journal.

While the Browns have seen little relief, some homeowners who were able to ward off foreclosure have benefited from the settlements the state secured. It led to banks being more receptive to offering financial help and to more programs for homeowners.

Brien was paying the mortgage on his $189,000 Jefferson Farms home for nearly 15 years. But when his wife was in a car crash, the family struggled keep up with the mortgage payments on top of mounting insurance bills and new car payments.

The family of four fell about $50,000 behind.

"I was worried," Brien said. "The mortgage company kept sending me letters every week that the house was under foreclosure."

With help from a mortgage counselor at the Hockessin Community Center, Brien negotiated a plan with Bank of America to lower his monthly mortgage payments from $1,300 a month to $1,000.

After making three successful payments, the bank dropped the foreclosure proceedings in December.

The majority of Delaware's settlement money stemming from the financial crisis has come from two types of cases.

One is the $25 billion National Mortgage Settlement where 49 state attorneys general joined the federal government to penalize five banks – Ally/GMAC, Bank of America, Citi, JPMorgan Chase and Wells Fargo – for what they did to mortgage holders.

Biden was initially hesitant to accept the terms of that settlement in February 2012 because of the then-ongoing MERS suit. But he soon accepted a deal that brought $12 million to Delaware, $1.8 million in direct payments to those who lost their homes to foreclosure, and $72 million to current homeowners in the form of mortgage principal reductions, refinancing or loan forgiveness.

Homeowners who had been foreclosed on between 2008 and 2011 and had a mortgage with one of those five banks, were eligible to receive checks for $1,484. Less than half, 44 percent, of those who were eligible, or 1,233 Delawareans, filed claims and received those checks, according to the most recent data from December 2012 provided by Denn.

The other set of cases – residential mortgage-backed securities cases – were those brought against individual banks for problems caused by the securities that were among the financial products that left investors with huge losses.

RMBS settlements in Delaware included:

• JPMorgan Chase settled in November 2013 for $19.7 million. That includes $7.6 million to reimburse pension funds and $12.1 million for the state. The bank is also expected to distribute $4 billion to homeowners nationally, but the state-specific allocations are not yet known.

• Bank of America settled in summer 2014 for $45 million. That includes $31.6 million for the state and $13.4 million for reimbursing pension funds for investment losses. Bank of America was also required to split $150 million between homeowners in the form of mortgage modifications and second-mortgage forgiveness in Delaware, Kentucky and Maryland. The bank is doing so, but the exact amount that has gone to Delawareans is not yet known.

• Citi settled in summer 2014 for $17 million. That includes $1.9 million for reimbursing pension funds for investment losses, $5.4 million to the state and $10 million in mortgage modifications for homeowners.

The state also secured settlements for homeowners with Ocwen Financial and Suntrust.

Suntrust is expected to provide $1.8 million in mortgage modifications to current homeowners and to send checks for varying amounts to 57 eligible former homeowners.

Ocwen Financial sent $1,200 checks in December to 216 people who lost their homes between 2009 and 2012 and who completed the requisite claim form. Ocwen has also provided $2.4 million in relief to Delaware homeowners and is expected to provide another $4 million.

The Brown family got a $500 check from the settlement with Citi, they said. But it was nothing compared to the $125,000 they expected after reading a remediation framework published in 2012 by the Office of the Comptroller of the Currency.

Attorney General Matt Denn said if homeowners have questions about their eligibility for relief under the settlements, they can contact his office.

Thomas and Abbie got into financial trouble when the mortgage on their New Castle County home was sold to Bank of America in 2013. They tried to go through the loan modification process and saw their interest rate go from 12 percent to 17 percent.

To get the modification, they were required to make three trial payments, meeting all requirements each time. But, Abbie said, when they rounded the monthly payment required from $1,639.95 to $1,640 – the bank decided the overpayment meant they could afford more and cut them out of future modifications.

They were forced into a short sale.

With their five kids and one grandson, they needed plenty of space. But their credit was damaged and they could not get a lease.

They rented two properties in their kids' names.

"Once you get into these situations, it's a cat-and-mouse game," Abbie said. "You get bumped around, bumped around, bumped around."

State officials have had to decide how to best spend the tens of millions in settlement dollars.

Biden's office directed Delaware's share to rental and affordable housing programs in troubled neighborhoods, foreclosure and mortgage assistance programs, and funding the unit that pursues future banking settlements.

Last year, Biden faced resistance from the Joint Finance Committee, which had other ideas about how to spend Delaware's $12 million share of the JPMorgan settlement. The same happened in California where money from the national mortgage settlement led to public disputes and eventually a lawsuit when the money went toward paying down the state's debt.

Similar decisions were made about using Delaware's portion of the $246 billion settlement with the major tobacco companies in 1998. The tobacco settlement, along with tobacco taxes, was supposed to go toward attacking tobacco use and associated public health problems, but in Delaware only $8.7 million of the $133 million the state received is expected to go toward that, according to a report from the Campaign for Tobacco Free Kids.

Now, Denn has put forward a new proposal to spend the state's remaining $36.6 million from RMBS settlements to fund substance abuse treatment, prison re-entry programs, police patrols in Wilmington, teachers and paraprofessionals at 16 high-poverty schools, and after-school and summer programs for children.

His plan also would allocate nearly half of the money to prevent future foreclosures, create affordable housing and provide down-payment assistance to homeowners willing to purchase homes in low-income areas.

The Joint Finance Committee is expected to consider Denn's proposal Feb. 5. The plan has already been criticized by some for focusing too heavily on Wilmington and not enough on foreclosure victims.

Ted Kittila, the Republican candidate who lost to Denn in November and a Wilmington corporate lawyer, said the monies should not be spent on programs that don't help homeowners.

Denn wants his office to help homeowners receive the assistance they deserve, but Denn said his latest proposal is about repairing damage to the financial markets harmed by residential mortgage-backed securities, not the harm done to individual homeowners.

"That's why so much of this is going to the larger economic issues," Denn said.

Dryden went door-to-door in Legislative Hall in Dover two weeks ago to ask lawmakers to support an alternative to Denn's plan – a victim's compensation fund and services for homeowners who lost their homes. She is lobbying for the money to go to her agency to start one-stop victim resource centers in each county that would help people erase foreclosure scars on their record and receive support.

Families like the Browns also feel angry that the money has been doled out to other causes. They say a victim's compensation fund or services could help replenish their depleted retirement savings account and send their two youngest children to college.

"We're talking to you," she said to The News Journal, "hoping maybe they won't forget us. We have a house – God supplies our needs. But what about those who don't?"

Michelle, who asked that her real name not be used, credits her good fortune to a state-funded mortgage counseling program and Bank of America's willingness to modify her mortgage payments twice.

Michelle purchased a $140,000 two-bedroom Newark ranch home in June 2010. But after about two years, she fell behind on her $900-a-month mortgage payments. She needed a costly auto repair and her $600-a-quarter propane heating bill was cutting into the little money she had.

Bank of America reduced her interest rate by 1 percent, but she was soon again on the brink of foreclosure. With help from a housing counselor with First State Community Action Agency in New Castle, she was able to negotiate face to face with the bank's attorneys and was approved for a second modification. The foreclosure was dropped last month.

Programs such as these are available throughout the state for struggling homeowners. The Delaware State Housing Authority has received money, and would receive more under Denn's proposal, to support nonprofit legal services that assisted homeowners going through foreclosure and direct financial support through the Delaware Emergency Mortgage Assistance Program.

From the time the money arrived in October 2012 through the end of last September, DSHA has assisted 107 homeowners through the mortgage assistance program, according to DSHA spokeswoman Christina Hardin.

DSHA has also used its money to support housing counseling agencies, such as the one Michelle benefited from. More than 850 cases were resolved through the Performance Based Mortgage Default Counseling Program, according to data supplied by Hardin.

A mediation forum started in 2010 by Biden to give homeowners a chance to meet with lenders, has also helped some. In the first 18 months, the program processed more than 1,300 residential foreclosure filings. The result was that 56 percent of eligible homeowners actively participated in the foreclosure mediation conferences scheduled for them, and of those, 73 percent either reached a non-foreclosure resolution with their lender or remained engaged in negotiations.

These types of programs are meant to shore up the future and create a better situation for current homeowners, but do little to remedy the past for the Browns and others, Rashmi Rangan, director of the nonprofit Delaware Community Reinvestment Action Council, said. She does not expect much of the settlement money to reach the accounts of those most harmed by the mortgage nastiness.

"It is unjust," she said. "They have never done anything for those who lost everything."

And frankly, Rangan said, officials really don't know where many of those injured most by the crisis have landed. That doesn't mean they couldn't be found – and she believes every effort should be made to do so.

"To me, it would be an awesome relief if there was an agency devoted to finding these homeowners," she said, "and working with them to provide everything they might need. We have an obligation to find these homeowners and do everything we can."

If officials were able to find those who lost their homes, they would see families still struggling.

Edwina had to leave her home – "my original and first home ever" – when changes in the economy, job changes and the need to care for seriously ill family members stretched her beyond her means.

She took out a second mortgage. Her original was sold three or four times.

She applied for a loan modification but never could make progress. She would send necessary documents and they would be lost or the mortgage company would say it never got the papers. That went on for three years, Edwina said.

Edwina then lost her contract mentoring job. She decided to rent her house out, but that caused new problems. When the house was no longer her primary residence, she lost her other options and the house went up as a sheriff's sale – unless she could come up with $35,900 she owed in 48 hours. She couldn't.

She then moved into the house her late husband had owned and recently had that mortgage payment cut from $1,600 a month to $850, but she is still behind on her taxes and water and electric bills. She makes $10.75 an hour and will struggle to catch up.

The Browns say their story and others show the injustice of the financial upheaval – and its impact on so many families whose credit was ruined, relationships strained and dreams devastated.

The Browns are quick to say they feel blessed to have found a home they could manage in Dunleith, where they moved in October. But, nothing can be done to reverse the emotional impact, Robbin Brown said.

"We will never recover from the disbelief that they let the banks get away with what they did," she said. "The people who ratted on each other are getting more money than the people who it affected."

Contact Jessica Masulli Reyes at jmreyes@delawareonline.com, (302) 324-2777 or on Twitter @JessicaMasulli . Follow Beth Miller on Twitter @BMiller57 or on Facebook.

QUESTIONS?

To get answers on how Delaware settlements might affect you, contact Lisa Spellman of the Office of Foreclosure Prevention in the Attorney General's Consumer Protection Unit at (302) 577-5092.