$204 million headed Colorado’s way in foreclosure aid

Nation’s 5 largest banks agree to make payments, address abuses

State Attorney General John Suthers released a proposed plan Friday about how to spend Colorado’s $204 million portion of a settlement with the nation’s five largest banks over their foreclosure and loan servicing practices.

The plan has not been finalized and no decisions have been made, a spokesman from Suthers’ office said. The draft release for a proposed allocation of settlements seeks comments from local housing agencies and stakeholders.

“The mortgage fraud cases that my office has handled over the last 5.5 years have given me particular insight into the severity of the foreclosure crisis in Colorado,” Suthers wrote in the draft proposal.

About 17,000 homeowners around the state who lost their homes between 2008 and 2011 will get relief, Suthers’ proposal said. In those cases, banks were proceeding with loan modifications and foreclosures on the same homes.

At least one Southwest Colorado homeowner, unsettled by the mortgage crisis, was heartened by the news when contacted Friday.

“Obviously, I’m rejoicing that something is finally being done to address the problems,” Kristine Bianchi said.

The $25 billion settlement agreement involved Bank of America, Chase, Citi, GMAC/Ally and Wells Fargo. And Suthers has proposed that Colorado’s portion of the money be used for programs that reduce borrowers’ loans, help them catch up on payments to become eligible for loan modification and refinancing programs, reach out to struggling homeowners, provide affordable housing help and offer foreclosure counseling.

The mortgage companies further agreed to what Suthers described as “far-reaching service standards.” The standards are 42 pages in length and govern many aspects of the loan modification and foreclosure processes. Among the rules are measures prohibiting “robo-signing.” And it requires lenders to provide a single point of contact to people going through loan-modification processes, ends practices of conducting foreclosure and modification efforts simultaneously and creates deadlines for completing modifications.

Other measures include the creation of an online portal for consumers to track their loan-modification process and a rule requiring banks to post customers’ payments to their accounts within two business days of receipt.

The settlement won’t solve all the housing market problems but “it goes a long way to helping homeowners in distress,” Suthers said in a February news release.

His office has received hundreds of complaints from borrowers who were “victimized” by lenders, the document sent out Friday said. “All too often,” the banks were foreclosing on homes while failing to act on homeowners’ dutiful efforts and cooperation with the lenders to modify their home loans, the document said.

It’s a story many local homeowners know well. Several residents came forward in recent months through The Durango Herald to share their struggles and details of their efforts to try to save their homes with loan modifications.

Despite months, sometimes years, of phone calls, faxes and paperwork, some tearfully watched their homes taken from them.

The settlement agreement was welcome news Friday for Kristine Bianchi, who now is 26 months into the process of trying to get her home loan modified while also fighting foreclosure proceedings. Her loan is held by one of the banks affected by the settlement.

Bianchi said she was approved 13 months ago for a “temporary” modification, a process that was supposed to last only 90 days and test the waters to see if the homeowner can handle the new proposed payment before the loan modification is finalized. After 26 months her loan modification still is not yet finalized.

“Two years and two months is a long time to keep a family under stress,” Bianchi said. “We never know: Are we packing? Are we leaving?”

On a national level, the $25 billion will go to numerous programs to help struggling homeowners, as well as state and federal agencies. Under those measures:

Colorado borrowers are expected to save an estimated $46 million through a measure in the deal designed to help people underwater on their homes refinance their loans at today’s reduced interest rates.

After a round of public hearings last month, Suthers has proposed using $51 million of the settlement as follows:

$24 million for supplemental loan-modification programs, which would reduce borrowers’ loan principal amounts, offer extra mortgage insurance to lenders to encourage loan modification approvals and assist borrowers to get current on their loans to be eligible for loan modifications or refinancing.

$18 million for affordable housing programs.

$5.3 million for housing counseling support.

$325,000 for housing counseling program administration.

$600,000 for the state’s foreclosure hotline.

$500,000 in marketing and outreach efforts to defaulted borrowers.

$1.5 million for state legal services.

$750,000 for the Attorney General’s Office for enforcement and monitoring.

hscofield@durangoherald.com