Federation of Connecticut Taxpayer Organizations

Attorney General George C. Jepsen, a member of the team of federal and state officials that negotiated the $25 billion settlement with the nation�s five biggest mortgage servicers unveiled Thursday, today vigorously defended the deal critics have portrayed as fundamentally flawed.

He said the terms of the agreement, lauded by government officials as �unprecedented,� �historic,� and �the largest joint federal-state settlement ever obtained,� were widely thought to be impossible as recently as 12 months ago.

He also insisted that issues not covered by the settlement � such as possible criminal prosecutions arising from the bundling of bad mortgages into �securitized� packages sold on Wall Street and favorably rated by credit agencies paid by the banks � would result in further �joint action� by federal and state officials.

�I�m very happy with it,� the lawyer and former state senate leader said of the deal struck with Bank of America, Wells Fargo, JP Morgan Chase & Cos., Citigroup Inc., and Ally Financial Inc. � formerly known as GMAC.

�It�s not going to solve our crisis in housing in this country, but it�s a very significant step in bringing meaningful relief to what will be thousands of homeowners in Connecticut and it will help put a floor under the new estate market, which is critical if we�re going to have a recovery.

�What gets lost is that by its inherent terms, we�re limited,� he added. �This is a lawsuit and the scope of our recovery is limited by the leverage we have arising from the credibility of our claims. We were able to take a very narrow slice of legal jurisdiction � specifically, the major mortgage servicers riding roughshod over the legal process while pursuing foreclosure � and turn it into an economic settlement far beyond what anybody dreamed possible.�

�And we did that while leaving other claims, such as securitization and the ratings agencies open,� he continued, saying such matters would be �actively pursued.�

The attorney general was echoing remarks made Thursday by President Barack Obama, who said the settlement �protects our ability to further investigate the practices that caused this mess.

�The mortgage fraud task force I announced in my State of the Union address retains its full authority to aggressively investigate the packaging and selling of risky mortgages that led to this crisis,� the president said. �This investigation is already well under way. And working closely with state attorneys general, we�re going to keep at it until we hold those who broke the law fully accountable.�

Jepsen, meanwhile, dismissed perhaps the most stinging criticism of the settlement � that it doesn�t cover mortgages backed by the government-owned Fannie Mae and Freddie Mac, which guarantee about half of the mortgage loans in the U.S., and that they could object to lowered prinicpals for homeowners.

�We don�t have legal jurisdiction over Fannie Mae and Freddie Mac, and it�s a bit of a �straw man� to say we didn�t control what we can�t control� he said. �I couldn�t make the Patriots win the Super Bowl, either � those are things beyond our control.

�One of the things likely to happen out of this is that when Fannie Mae and Freddie Mac see that the sky doesn�t fall down because of prinicipal reduction on loans, they�ll come around to the enlightened self-interest position that the big banks did,� he predicted. �They would rather take a haircut on a loan rather than let it slide into foreclosure and be essentially worthless to them. A year ago, the folks we settled with yesterday were absolutely adamant that principal reduction would not be part of this settlement.�

Jepsen acknowledged that critics were correct to say that it could take another three years before some homeowners benefit from the settlement. But he said the banks have to have �a reasonable timeframe to ramp up� and that 75 percent of the targets set for them �has to be achieved within two years.�

�These things can�t get processed overnight and one of the largest impediments to relief is that homeowners are shell-shocked and it�s very difficult to get them to respond to attempts to reach them in many cases,� he said. �The return rate, when they do mortgage fairs and loan modification events, even after multiple mailings and telephone messages, can be as low as 3 or 4 percent. Part of our task is to help persuade people that this is the time to go in and get a modification.�

Jepsen was responding to questions raised by critics like Tom Swan, the executive director of the Connecticut Citizens Action Group, who on Thursday characterized the settlement �a tiny drop in a big bucket.�

�It does not do justice for the millions of homeowners who lost their homes or hold the banks fully accountable for their crimes,� he said. �For homeowners who were defrauded and lost their homes, $2,000 is too little, too late. It is a paltry down payment toward full relief for homeowners.

�The fight is not over,� Swan added. �The Obama administration needs to make sure that its task force goes the distance and delivers at least $336 billion in principal reduction on underwater mortgages and $50 billion in restitution for affected homeowners.�

In Connecticut, borrowers would receive an estimated $119 million in benefits from loan term modifications and other direct relief, according to Jepsen.

He said an estimated 7,500 Connecticut borrowers who lost their homes to foreclosure between Jan. 1, 2008 and Dec. 31, 2011 and �suffered servicing abuse� would qualify for an estimated $1,500 in cash payments to individual borrowers.

Jepsen said that figure was an estimate because it depends on how many people apply for payment.

�If the return rate is high, like 76 percent, since the money is coming from a fixed pool the checks will be correspondingly lower. If the return rate is low, like 40 percent, then the number creeps up.�

Jepsen also said the value of refinanced loans to Connecticut�s underwater borrowers would be an estimated $36 million and that the state would get a direct payment estimated at $27 million to help pay for local foreclosure prevention programs.

Visit the Journal Inquirer for more informative news at http://www.journalinquirer.com/