MR. KOJO NNAMDIFrom WAMU 88.5 at American University in Washington, welcome to "The Kojo Nnamdi Show," connecting your neighborhood with the world. Later in the broadcast, Virginia debates the Tim Tebow law, built to let home-schooled students participate in public school athletic programs. But first, a $26 billion settlement between the states and big banks over deceptive foreclosure practices. We're joined in studio by Doug Gansler. He is the attorney general of Maryland. Doug Gansler, thank you for joining us.

ATTY. GEN. DOUGLAS GANSLERThanks for having me.

NNAMDIThe housing crisis left one in five homeowners underwater with their mortgage, owing more to banks than the house is worth. It also plunged 4 million Americans into foreclosure. Each of those foreclosed properties generated reams of paperwork for big financial institutions, creating a tidal wave of documents and a huge incentive to cut corners. Attorneys general around the country accused those banks of a variety of illegal practices and outright fraud, using so-called robo-signers who processed claims without assessing their quality and using fabricated signatures.

NNAMDIThe deal announced today will give relief to 2 million current and former homeowners and as much as $960 million to homeowners in Maryland. But some worry that it could let banks off the hook. Doug Gansler was one of the attorneys general to sign on to the multi-state deal. He joins us to explain how the deal affects homeowners in Maryland and the rest of our region. Once again, Doug Gansler, good to see you.

GANSLERGood to be here.

NNAMDIThe deal seems like it has two goals: delivering relief to some homeowners and former homeowners and compelling five big banks -- Wells Fargo, Bank of America, JPMorgan Chase, Ally Financial and Citigroup -- to pay up and admit they engaged in fraudulent behavior. It took 16 months to hammer out. What are the core provisions of this settlement?

GANSLERWell, actually, there's two things, and you mentioned one. One is to bring direct imminent relief to the people who are the very victims of the conduct of the bank, the very heartless soulless conduct of the banks that actually led to many people being foreclosed upon. And even if you're not some of the -- that was foreclosed upon, you felt the impact because the foreclosure crisis then led to the economic downturn that affected everybody. So that is the one thing.

GANSLERAnd you mentioned the five major banks. Those are the big banks. The next thing the attorneys general will do is go after the next nine biggest banks. So, ultimately, we'll actually bring well over $1 billion into Maryland. The reason why it took so long to accomplish in terms of the deal, the robo-signing revelations came out, if you recall, about October of 2010. The deal -- we were able to use that to do in-depth investigation with our federal partners as well and found a number of very disturbing violations and insidious conduct conducted by the banks.

GANSLERSo the problem, though, was what would we be giving up? We're getting an enormous amount of money here, Maryland disproportionately so. And what is it we're giving up? Well, at the end of the day, we ended up giving up just state claims and federal claims regarding the origination of those loans and the servicing of those loans. The big sticking point was the banks wanted us to waive any claims regarding the securitization of those loans.

GANSLERThat is, the banks that took these loans that were subprime loans, knowing full well the people were not going to be able to satisfy those loans, packaging them together and then selling to investors. We were unwilling to waive those loans. So we only gave up the origination piece, which, of course, most the originators are long gone by now. Most of those claims have actually been -- the statute of limitation has tolled on those claims.

GANSLERSo it's really the servicing piece of that. We did not give up any ability to bring fair housing claims, any ability to bring MERS claims, any civil rights claims. As I mentioned, we didn't give up the securitization claims, nor did we give up claims for any individual. In other words, if an individual could show that the fraud perpetrated by the bank directly led to their being foreclosed upon, they can seek up to full restitution. So...

NNAMDIThat individual can, himself or herself, sue?

GANSLERThat's right. Exactly. And the other -- and the second thing I was going to mention, that we did besides the big money piece, is that there are 42 pages of industry standards now put into place that will be used by the industry going forward regarding servicing so that we will not -- that the banks will be unable to wreak this type of havoc upon our citizens again in the future.

NNAMDI800-433-8850 is the number to call if you'd like to join the conversation. How much are the banks and fraudulent practices to blame for the foreclosure crisis? Do you agree with the proposed settlement? 800-433-8850 or you can send email to kojo@wamu.org. We know that this deal would affect about a million homeowners who are currently underwater, and it would cut $2,000 checks to 750,000 people who have already lost their homes.

NNAMDIHow many people stand to benefit? And I'm reluctant to use the word benefit. I want to say be affected, maybe, to some extent, made whole, in Maryland in our region.

GANSLERWell, everybody will be made -- benefit, in the sense that this will help stem the foreclosure tide, and it will bring all housing -- the market and help the economy is a general rule. There will be thousands of people, thousands and thousands, tens of thousands probably in Maryland that will be affected by it to avail of themselves of the services. Of the almost billion dollars -- and, unfortunately, Maryland was disproportionately impacted by the foreclosure crisis.

GANSLERAnd the fortunate piece therefore is that we're getting more money than New York. I mean, we're getting the sixth most money in the country as part of this 50-state deal.

NNAMDIMaryland gets $960 million, Virginia, $480 million, and District of Columbia, $45 million.

GANSLERFor example, we get double of what Virginia gets because, unfortunately, we have so many folks that were there. The way the money comes in, though, is four different pools. So there's -- the pool of people that have been foreclosed upon, that is, they're no longer in their homes, they get a check of $1,800 to $2,000 estimated, which -- again, they can still bring their own claims, but it's basically a windfall for them. Then there's the pool of people who are currently underwater. That is, they have a huge negative equity in their home. Let's say...

NNAMDIThat's a large pool.

GANSLERThat's a large pool. And let's say they live in Prince George's County, and they're paying now a $300,000 loan for a house that's now actually -- the actual value of the house, say, $170,000. They would be unable to refinance under normal circumstances because of the negative equity. The banks will now allow them to refinance and do a loan modification such that their interest rate on their payments will go down significantly.

GANSLERThose are people that are actually up-to-date on their payments, but they're in big -- they're underwater in terms of the future. The largest sum of money will be write-downs by the banks going directly to principal reduction, which is huge, 60 percent. For example, in Maryland, $809 million of this is that pool. And that 60 percent of that money has to be used for principal reduction and loan modification.

GANSLERSo this helps the banks as well because, now, they're not going to have to foreclose upon people and have these empty houses sitting there. They're actually going to have income coming in. The final pool is a smaller one, which will be money that's administered sort of by the attorney general's office, my office in Maryland and every individual attorney general in the country, which will be used for housing-related projects. In particular, one of the places we're going to invest a lot of money is on housing counselors and legal assistants.

GANSLERIt's one of the few things that's actually been proven to work. If you're sitting there, you're doing a loan modification, you have a housing counselor next to you, you're -- there's a 70 percent chance you'll still be in your home six months from now, if you don't have a housing counselor, 20 percent. So we want to make sure there's adequate housing counselors that take advantage of this program with the people in Maryland.

NNAMDIOn to the telephones. Here is Joe in Takoma Park, Md. Joe, you're on the air. Go ahead, please.

JOEYes. Thanks for taking my call. The question I have is -- any of the officers going to be criminally indicted? Are they going to jail? Or is this another way for them to get -- as you said, this helps the banks. And what we're seeing again is, for some reason the federal government, state government,, these guys are untouchable.

NNAMDIWell, let me make that part of a two-part question because the housing crisis began in 2007 and 2008. This story first began to emerge, as you pointed out, Doug Gansler, in 2010 with stories of single people processing upwards of 10,000 foreclosures a month, as many as one per minute. Today, when we talk about robo-signing, we're actually talking about a range of illegal practices. What exactly did banks do? And as Joe is asking, should somebody someplace be going to jail?

GANSLERWell, Joe is absolutely right in the sense that somebody someplace -- in fact, many people in many places ought to be going to jail. This settlement has absolutely no effect whatsoever on any potential criminal prosecutions. So those will be forthcoming in many states around the country to hold the people accountable, both from the banks, the targeters of people for subprime loans, as well as the robo-signers that you just mentioned, Kojo.

GANSLERSo that will forthcoming. You know, I mentioned it helps the banks in the sense that they're bringing money in, in terms of people being able to stay in their houses. Clearly, the beneficiaries of this settlement are the people themselves, the people who have been foreclosed upon, but more so the people who are the brink of being foreclosed upon. And it's a huge amount of money.

GANSLERThis is the largest joint settlement in the history of the United States where the federal government and the states have worked together. This is $26 billion. And I should mention this is just what a literal and figurative down payment on what the banks will have to pay for what their conduct was here. This is just the origination, just the securitization and only involving state and federal claims, which, by the way, attorneys general have just a small sliver of jurisdiction over the national banks, anyway, and credit cards for that matter.

GANSLERSo we are very excited about this and particularly because it's going to be a settlement that's -- consent order put into a federal court and actually in the District of Columbia, in the D.C. circuit, monitored by a federal judge, with a monitor that's going to make sure that the banks are complying. And the banks, we don't -- many of us don't trust the banks, the big national banks. But we're in a position here where our interests are aligned with theirs.

GANSLERThat is, they have a huge incentive to get this -- almost $26 billion out the door right now when people need it because they'll have to pay a bigger penalty if they don't.

NNAMDIThe New York Times reports, Joe, that one of the largest companies that provided home foreclosure services to lenders across the nation, DocX, has been indicted on forgery charges by a Missouri grand jury. It's one of the few criminal actions to follow reports of widespread improprieties against homeowners. Joe, that's at least one example so far.

JOEWell, 2.5 -- we only get $26 billion. That's 2.5 percent of the $800 billion we gave the banks.

NNAMDIOK. Thank you very much. And we will pursue that line of questioning about the banks with Doug Gansler. The banks already set aside this money, expecting to have to pay eventually, which raises this question, a kind of corollary to Joe's question: Are the banks getting off too easily?

GANSLERAnd it's a great question, yeah. We just did an event at the United States Department of Justice. And some of the questions were -- this is, you know, you're pinning the banks too hard. They -- you know, this is just for origination and servicing. The big claims are going to come on the securitization and other pieces. And then people say, well, you're letting them off too easy. The fact of the matter is it's in a completely appropriate settlement. They're getting whacked.

GANSLERIt's a huge amount of number -- a huge number of dollars coming in directly to people to help them out of their crisis situation and at the very -- you know, without giving up much. So, yes, they expected this because they were part of negotiations, so they were able to take some of the money and put it in escrow 'cause it's an enormous amount of money to put aside, to put into these states. So, you know, were they able to -- do they have time to prepare for this? Yeah. Are they now whining about going under? Sure.

GANSLERI have no sympathy for the banks, particularly given the conduct that led to the foreclosure crisis, much of which was insidious behavior by the banks.

NNAMDIWe're talking with Maryland Atty. Gen. Doug Gansler and inviting your calls at 800-433-8850. Should the government also be trying to help underwater homeowners? You can go to our website, kojoshow.org. Join the conversation there. Have you gone through the foreclosure process yourself? How would you describe it? How much confusion surrounded that process? You can also send us a tweet, @kojoshow, or send us email to kojo@wamu.org. Here is Charles in Cheltenham, Md. Charles, you are on the air. Go ahead, please.

CHARLESGood morning, Kojo, and, to the government official, thank you very much for the long overdue assistance that many people have waited for. I've got a question that may fall slightly outside the scope of what seems to be the issues that you all have addressed, which is the issue of malfeasance. In my particular case, I came as a builder, as an investor-builder from my original home, and I moved to Washington, D.C., several years ago.

CHARLESWe bought a lot, developed it and maintained the project for a long time, lived in the house. It was a multi-dwelling. I couldn't get any tenants, and so I informed them that that's becoming a burden to us and plead and begged for help. We never got a response. We wound up having to report their ignoring us to the regulatory authorities, and we still never got any response, except that they moved forward with the foreclosure. What's in place to be of assistance...

NNAMDIAny provisions under the settlement for somebody like Charles?

GANSLERYes, exactly. Charles, that's exactly the kind of scenario that that we're going to look forward to in the future. There's literally 42 pages of new industry practices that were going to place regarding the type of thing you're talking about, where foreclosure affidavits must be personally reviewed and based on competent evidence by the banks in the future. Each bank will -- each person will, like yourself, will be given a individual, not being passed around within that particular bank to deal with on these issues.

GANSLERSo there's, you know, literally 42 pages of servicing. You couldn't even get an answer, and that's -- and that was one of the major problems. And that's why we're really focused on the national banks first because they're the ones -- what they would do is they would send out all these people that did originate the claims, originate the loans and they're all gone by now. And -- but the banks certainly were complicit.

GANSLERI don't know. You use the word malfeasance. You can use a lot words, what they did, but they knew exactly what they were doing. They were preying upon unsophisticated people in many cases. In many cases, not unsophisticated people, but allowing them to get into situations where they knew -- the person sitting at the table knew that that person was going to be able to comply and satisfy this loan.

GANSLERYet, nevertheless, they made the loan and then multiplied it and exasperated the problem by then selling those to institutionalized investors and people and -- to make it even worse. And, of course, this is, in large measure, what started the economic downfall in the first place.

NNAMDIA lot of people have question about this. Thank you for yours, Charles, and good luck to you. Here is Bryan in Washington, D.C. Bryan, your turn.

BRYANHey, Kojo. Thanks for taking my call. My question is, I work in the financial education field. And so many of the folks that are being taken -- I guess, will get some of the settlement -- is people who maybe didn't know what they were getting into. And my question is, whether from the state's perspective, some of those funds that are going to be allocated towards counseling, if that's going to be preventative in sort of putting out financial education, so before the next borrower gets abused, there is -- more funds are allocated to education, financial education.

GANSLERNo, it's a great area and an important area, and, you know, we have not made the decision. We've met with a lot housing advocates. We've met with -- we had meetings with pastors. We've had meetings with local housing peoples, national housing folks about what is the best the use of that particular fund. That particular fund is $62 million coming to the state of Maryland. We are going to give up to 10 percent of that money as civil penalties.

GANSLERWe're going to give it to the general fund of Maryland because they were affected as well by this. The other $56 million, we're going to use for things like housing counsel, legal assistance, folks who now have lost their credit rating because they weren't able to make these payments solely because the conduct of the banks. In other words, they weren't deficient on other payments, just their housing.

GANSLERAnd now they're going to have to live with this in years to come. We're going to help them with that. But the financial education field is a huge area that we will definitely look into spending some funds on.

NNAMDIBryan, thank you very much for your call. President Obama recently proposed a bill that would allow underwater homes to refinance their loans at lower interest rates, but the administration has had trouble designing a program that would deliver relief at the scale that is necessary. Will this settlement, in your view, be more effective?

GANSLERYeah, because the difference is here is that we actually have a federal court order that's going to be hanging over their heads and they have to comply. We have a monitor that's working with the staff to make sure that the banks get in touch with the individuals who are eligible for these funds. The state government -- my office, the attorney general's office, will also attempt to get in touch with each of the individuals and say, look, you know, yes, we know you've been running from the banks for these past years.

GANSLERYou're not taking their calls. You're not taking their mail. But we're the office of the attorney general, and we're here to tell you that you can get this help, and you need to call this person so that your principal can be reduced, so your interest rate can be reduced, so that you can stay in your house. You and your children and others can stay in their house, so we can start to stem this foreclosure crisis.

GANSLERPresident Obama set up a committee with one of my colleagues. The attorney general of New York will be on it. We'll be part of that to make sure that we bring subsequent claims, and that's the key to this. This is just a first step, a huge, first step in helping people. It's imminent help. It's accountability. It's direct help, but there's more to come based on the conduct that these banks did.

NNAMDIHere is Jose in Bristol, Va. Jose, you're on the air. Go ahead, please.

JOSEHi. Good afternoon, Kojo. How are you doing today?

NNAMDII'm well.

JOSEVery good. I have a question. I live in Prince William County. My house went into foreclosure. I was lucky that I got a repayment plan with my bank. Aurora Loan Services, of course, made that first payment, but my next payments are astronomically high. For a person like myself, how do -- do I contact the bank to see if I can qualify for a modification, or a reduction?

GANSLERYeah.

JOSEDo I wait for them to call me? I understood that there was only five banks. Is my bank part of that settlement? So how can I find out?

NNAMDIWhat is your bank?

JOSEIt's Aurora Loan Services. It's a subsidiary.

GANSLERWell, but it's -- I'm sorry, go ahead. Yeah, it depends on what -- who they sold. Regardless of originated your loan, if that loan was serviced by Bank of America, Wells Fargo, JPMorgan, Citibank or GMAC Ally, then you will be able to contact those banks. This will not be entered in federal court for another couple of weeks. Today is the announcement of the agreement with what was 49 states, but I understand that since we've been talking, that Oklahoma has now joined to make it all 50 states.

GANSLERAnd so, yes, the banks are supposed to contact you. But I would go ahead and call the banks or your attorney general's office. My office has set up a switchboard already to start to field some of these calls, to answer some of these questions, to get people directed toward the help that they need so that they can avail themselves of these funds. Obviously, we are disproportionately affected.

GANSLERWe have almost $1 billion to make sure it gets into the hands of the people who need that money and are eligible for that money. As I mentioned briefly before, this involves the top five banks. What we're going to do next is reach a settlement along these same lines with the next nine biggest banks, so that we'll encompass even more people and getting more people help.

NNAMDIAnd, Jose, we mentioned that the settlement involves $960 million for Maryland, $480 million for the Commonwealth of Virginia and $45 million for D.C., so good luck to you. This deadline for this deal was moved a couple of different times, in particular, to try to convince the attorney generals of New York and California, Delaware to join the settlement. Why were they reluctant to join?

GANSLERThey were reluctant because the reluctance and the people holding out, including myself -- I made the decision to join in an hour before the deadline because I saw what was happening and the deal was getting better and better for us. If you remember, just a couple of months ago, the total was $5 billion reported. And now, today, it's $26 billion. So we were able to get a better deal from the banks without giving up jurisdiction over things, like securitization and criminal conduct.

GANSLERSo I think that's why the states were holding out. They're really heroes in this, you know, because this is a deal like no other. You know, look, you kill somebody. They make a decision on how many years you're going to spend in jail. It's not going to bring that person back to life. Here, the bank engage in this very horrible conduct in what they were doing in terms of getting these loans, the subprime loans.

GANSLERAnd -- but the money is going directly to their own victims to make them closer to hold, to make them have the ability to stay in their homes. So it took to the very last minute to get California on board and New York. New York is much more concerned as they might because the banks are operating out of New York regarding the securitization. What do these banks then do with these loans?

GANSLERHow do they package them up and sell them to institutional investors and individual investors, so that they loss their money as well? And what is the recourse? And now, we have full recourse available to us as we go forward.

NNAMDIThe benefits that are coming to homeowners who were foreclosed on and who find themselves underwater come as a result of the tough negotiations by state attorney's general here. And in case you're wondering why do they negotiate so toughly? Well, a few months back, when Doug Gansler told us a joke that has stuck with me, you're part of the National Association of Attorneys General, which goes by the initials, NAAG. Apparently, some people say this really stands for the National Association of Aspiring Governors. This is a tough and ambitious bunch of people.

GANSLERThis is. and you know what's interesting, the people who held out the longest -- ironically or interestingly, and if you look at who they are in the states -- were prosecutors. So Kamala Harris in California, she was the DA. You know, Beau Biden in Delaware is the DA. I was the -- obviously, an assistant United States attorney and the states attorney here. So, you know, Martha Coakley in Massachusetts, DA. These are the states that were reluctant to go on because we see bad conduct, and we want people to be punished.

GANSLERWe were not willing to give up a soft deal. So yes, and, you know, we'll be working with our governor partners in this deal and others. And so I think it's, you know, we're there to represent the people, and I think that was what exactly happened in this case.

NNAMDIGot to move on, but later in the hour we're discussing a proposed law in Virginia that would allow homeschool students to participate in public school varsity sports programs. I know you coach your kids' lacrosse teams, and your kids were both very active in organized sports. What do you think of the idea?

GANSLERWell, I think, you have -- it's the devil in the details on that, you know, how you're going to put it together.

GANSLERI think all kids should be able to participate in sports. Now, you know, unfortunately, when we were coming up and you only participate really in school, and now there's all these clubs programs and outside programs. So the question is what school -- how do you tie it in? You know, we do allow charter schools to participate in our programs, and they're certainly not public in some sense. So, you know, it's an interesting debate and we'll see where it goes.

NNAMDII suspect it's mostly about football. Doug Gansler -- Douglas Gansler is the Maryland attorney general -- thank you so much for joining us.

GANSLERThanks for having me, Kojo.

NNAMDIWe're going to take a short break. When we come back, the aforementioned proposal in Virginia that would have allow children being homeschooled to participate in high school sports. You can even start calling now, 800-433-8850. I'm Kojo Nnamdi.