Banks have reduced Connecticut mortgages by $185 million

Washington — Five of the biggest U.S. banks have reduced the mortgages of struggling Connecticut homeowners by nearly $185 million, according to the latest report by a national settlement monitor.

The loan forgiveness is a result of a $26 billion settlement between Bank of America, JPMorgan Chase, Wells Fargo, Citibank and Ally Financial and the Justice Department and dozens of state attorneys general, including George Jepsen of Connecticut, who was a chief negotiator.

The banks are exhibiting ‘enlightened self-interest’ in modifying their loans to struggling homeowners, says Attorney General George Jepsen, although some housing advocates say loaners can be resistant to settlement.

“We’re succeeding beyond what we expected,” Jepsen said.

The banks agreed to the settlement after they were accused of fraudulent conduct that included “robo-signing” foreclosure documents.

According to a report released Monday by Joseph Smith, the settlement’s monitor, banks are cutting an average of $96,000 from mortgages held by Connecticut homeowners. To qualify, a mortgage must be “underwater,” or larger than a house is worth.

About 2,500 Connecticut homeowners have already been helped, and 1,600 to 1,700 are “in the pipeline” for loan modifications, and other types of debt forgiveness, Jepsen said.

Nationally, more than 309,000 borrowers received some form of mortgage relief between March 1 and Sept. 30, Smith’s report said.

“The relief the banks have reported is encouraging,” he said in a statement.

Jepsen said if the banks continue the loan modifications, the total sum of relief received by Connecticut borrowers will “significantly exceed our estimates.”

But they will account for a fraction of the mortgages in Connecticut currently underwater. Zillow.com, the real estate tracking company, found there were more than 156,000 of them in the state as of Sept. 30.

Nevertheless, Jepsen said the banks have decided to “aggressively implement” the settlement due to “enlightened self-interest.” They realize it’s better to “take a 20 or 25 percent haircut” than to implement a costly foreclosure, he said.

Banks can be ‘uncooperative’

Victoria Gowlis, a housing councilor for Catholic Charities in Norwich, said the settlement has helped many who have come to her for help.

“It’s keeping them in their homes at a reduced mortgage and sometimes a reduced interest rate,” she said.

But she disagreed with Jepsen that banks are eager to write down mortgages for her clients.

“It’s very difficult,” she said. “Some are very uncooperative.”

Other housing advocates have criticized the settlement because homeowners who borrowed from other lenders, including Freddie Mac and Fannie Mae, can’t apply for a reduction of their mortgages.

“They are of the mind that if you can’t help all of them, you can’t help any of them,” Jepsen said.

Another aspect of the mortgage settlement has also been criticized: Homeowners who have already lost their homes to foreclosure are eligible for only a $1,600 compensation payment.

“It’s rough justice, it’s a token,” Jepsen concedes.

But he said all of the homeowners who suffered foreclosure in Connecticut had defaulted on their loans, and that no one in good standing lost their homes. Those who have lost their homes will be able to apply for the compensation payments in January.

The settlement also gave Connecticut $27 million to spend on counseling and other help to homeowners. According to Connecticut’s Office of Policy and Management, more than $21 million of that money has been spent on the state’s Emergency Mortgage Assistance Program, which helps the unemployed and underemployed make their mortgage payments.

The five banks involved in the settlement must also adhere to new lending standards.

That will be a big help, said Jeff Gentes, an attorney with the Connecticut Fair Housing Center.

Gentes said Connecticut is among the states that has sent the most complaints to the monitor about noncompliance of these new standards, a sign that housing councilors and others are serious about their roles as watchdogs over the banks.

“We’re going to hold their feet to the fire,” Gentes said.