We need a creative fix of state's mortgage mess

How about using the national settlement money to actually help victims and not just hire additional government employees?

Last month, the Executive Council was asked by the New Hampshire Attorney General to approve a plan to use some $9.5 million of last winter’s national mortgage settlement with major banks to hire additional government employees.

New Hampshire is one of 49 states that reached agreement in February with the largest mortgage lenders in the nation concerning lending abuses — Bank of America, Citi, JP Morgan Chase, Wells Fargo and GMAC/Ally Financial. Together, these banks account for some two-thirds of New Hampshire mortgages held by financial institutions.

The state’s share of the settlement was $43.6 million. The Justice Department and Banking Department said last winter they would like to use some $11 million of this amount, or 25 percent of the total, to hire government personnel to establish an investigative fraud unit as well as offer counseling services to injured homeowners; in addition, it was proposed that mortgage settlement funds be used to beef up the state’s financial enforcement capabilities.

However, questions about the government’s plan remained, and at last month’s meeting of the Executive Council, the attorney general was told to return in September to provide further information concerning his department's proposal to hire new employees.

This whole matter strikes me as locking the proverbial barn door after the horse has left the barn.

Thousands of New Hampshire homeowners have lost their homes due to mortgage fraud by these and other financial intuitions. Furthermore, many homeowners right now cannot refinance their mortgages and are being told by these same banks they will not be given a reduced mortgage rate because they don’t now qualify — the same people who once “qualified” under these bank’s lax mortgage standards.

It has been announced that some $19 million of the settlement will be used to reduce mortgage principal by those borrowers meeting certain defined criteria. An additional $9.5 million will help lower the principal balances of homeowners who have no remaining equity in their homes.

But many homeowners will not be eligible because they received loans not backed by either Fannie Mae or Freddie Mac, the two federal agencies that provide a financial backstop to mortgage loans.

How about using most of the money to actually help the victims directly and not use this unfortunate situation as an alternative reality to hire additional government employees?

Some of the settlement money should be used to establish a guarantor fund to incentivize banks to refinance some of the more difficult loans. In addition, the state could use funds to provide meaningful legal assistance to help New Hampshire property owners better understand their rights with the financial institutions that actually defrauded them. Many homeowners are just not aware of their legal standing in this area of law and do not have the financial resources to hire legal counsel.

In addition, some of the funds could be used to study looking into establishing a housing court in the state.

The point is there are many directions that could be taken with millions of dollars. The least constructive course strikes one involving the hiring of more government employees.

Instead, why not establish a task force headed by financial professionals, and not lawyers or new government workers, and direct them to use the funds to help people refinance or restructure their homes? A relatively small amount of the settlement funds could be used to defray administrative costs and associated expenses to directly help those most at risk.

Hiring financial professionals who can get the job done to actually save the homes of New Hampshire citizens — that’s the plan the Executive Council should be considering.

Mark Connolly, the former director of the state Bureau of Securities Regulation, is the owner of New Castle Investment Advisors LLC, New Castle.