WASHINGTON (Legal Newsline)-A California-based advocacy group that helped start the grassroots foreclosure freeze movement has taken its appeal to help homeowners to Capitol Hill this week.

Robert Gnaizda, general counsel of The Greenlining Institute, told Legal Newsline that he met with Federal Deposit Insurance Corp. Chairwoman Sheila Bair on Monday, and that he would meet with Speaker of House Nancy Pelosi, D-Calif., and Chairman of the House Finance Committee Rep. Barney Frank, D-Mass., on Tuesday.

Gnaizda said he is telling these political powerhouses that investor influence will block loan modification efforts and that a 120-day national freeze on foreclosure activity is critical to stem the tide epidemic of foreclosures.

"Legislation is being introduced," Gnaizda said, "that has the support of the entire Democratic Party, calling for a foreclosure moratorium of 120 days."

Gnaizda is also here to criticize the $8.68 billion settlement reached by California Attorney General Jerry Brown, Illinois Attorney General Lisa Madigan and Countrywide Financial Corp. over its alleged predatory lending practices.

The attorneys general called the settlement with Bank of America, which bought Countrywide in July, a historic achievement and the largest settlement of its kind.

But Gnaizda said it suffers from a "fatal flaw" in that it favors Wall Street investors over Main Street homeowners.

"We cannot accept the Bank of America settlement as the gold standard," Gnaizda said he told Bair, "and despite what the California Attorney General says, Bank of America does not have the power to address those loans that are in the hands of the investors."

Gnaizda said hedge fund investors that bought mortgage securities have been outspoken recently against the potential billions in losses that could occur from modifying loans.

But the California attorney general's office told Legal Newsline on Tuesday these claims mischaracterized the settlement.

"Countywide has represented to us, and it has been documented in the judgment that it has existing authority or it has substantial investor approval (to modify loans)," said Benjamin Diehl, California Deputy Attorney General for Consumer Law. "It's one of the two, perhaps in some cases even both."

Gnaizda, along with San Diego City Attorney Mike Aguirre, have argued that the settlement did not contain an admission of fraud by Countrywide. The pair believes that only an admission of fraud would force hedge funds to allow Bank of America to revise loans.

But the admission of fraud is not necessary, according to Diehl.

"We have the investors on board," Diehl said, "so we have a program that is going to save homes. The dickering over whether there is an admission of fraud misses the point. The program is being lauded nationally and followed by other lenders as witnessed by recent announcements from JP Morgan Chase and Citibank."

Aguirre, who like Brown and Madigan is a Democrat, originally called the settlement a "home run," but has since been critical of it. Despite their party ties, Aguirre and Brown sparred frequently during the course of the Countrywide negotiations.

Aguirre is the only city attorney to have sued Countrywide. He has not yet agreed to settle his lawsuit. Aguirre also sued both Wachovia and Washington Mutual for predatory lending practices.

But Aguirre lost his bid for re-election on Nov. 4 to Republican Jan Goldsmith, who said he would drop all these suits once he assumes the city attorney post.

Diehl said other states that have sued or will soon sue Countrywide will negotiate their own settlements, though he expects most to follow suit with the deal struck by California and Illinois.

"The terms are going to be fairly universal, especially the loan modification program," Diehl said.

Which is precisely what motivated Gnaizda's trip to Washington. Gnaizda believes a tougher deal that ensures protection for homeowners, including a foreclosure moratorium and significant loan modifications is the only way to ensure victims of predatory loans are protected.

He believes that only 20 percent of Countrywide homeowners facing foreclosure will be helped by the settlement.

Diehl said the final percentage can not be determined because the future of the economy remains in doubt.

"I suspect the real number will end up being higher," he said. "How it works on the exact percentage depends somewhat on what happens with the economy in the next two and half years. Trying to speculate to a percentage is very hard to do."

Diehl said he believes the Countrywide settlement will serve as an effective model for future protection of homeowners.

"This is a program that at the time we negotiated it with Countrywide and the attorney general of Illinois, we were proud of," Diehl said.

"We are hopeful and confident that it will help homeowners avoid foreclosures. We've seen the influence it has had. On the other hand, we're always hopeful that lenders can do more. We don't want to be seen as a ceiling. If anything we want it be seen as a floor that even more can be done in the future, because that will help even more people save their homes."