Fund in works for victims of foreclosure mess
Wednesday, November 17, 2010
State attorneys general and the country's biggest lenders are negotiating to create a nationwide fund to compensate borrowers who can prove they lost their home in an improper foreclosure, state and industry officials said.
The fund would present a solution for both sides, helping banks avoid lengthy and costly court challenges from homeowners and aiding state investigators in their efforts to seek relief for homeowners who were wronged, the officials said.
Discussions are continuing over the size of the fund, who would administer it and what kind of proof homeowners would have to present to get access to the money. But there is a consensus between the lenders and state officials that some sort of financial remedy is necessary to avoid the turmoil that could result from homeowner challenges.
Any settlement between the banks and attorneys general almost certainly would force lenders to put more resources into modifying the loans of homeowners who missed their payments, rather than rushing toward foreclosures, state officials said. The banks could also be barred from foreclosing on homeowners while simultaneously negotiating mortgage modifications.
The fund, the first of its kind in the mortgage industry, would mirror victim-compensation efforts set up in recent years in response to the BP oil spill in the Gulf of Mexico, the shootings at Virginia Tech and the terrorist attacks of Sept. 11, 2001. Those were all administered by a specially appointed czar, Kenneth Feinberg, who had the tough task of figuring out what each victim should receive.
Iowa Attorney General Tom Miller, who is leading a joint, 50-state investigation, declined to comment Tuesday on the specifics of the group's negotiations with the banks but said that hammering out details could delay a final agreement for a few months.
Miller said that's because the remedies being discussed go far beyond the problem of "robo-signing" and into deeper problems facing the mortgage servicing industry.
"We want to be more creative and figure out a way to make the system better," Miller said in an interview. "For instance, rather than having them pay a huge amount of fines, much of that money [could instead] go to adequate resources to make this work."
A quick settlement may be the best solution for the industry, homeowners and state and federal investigators, given the uncertainty the foreclosure mess has cast on the health of the banks and, more broadly, the housing market, officials said.
"It is in everyone's best interest to get this settled and behind us," Bank of America chief executive Brian Moynihan said Tuesday at a financial services conference in New York.
Biggest firms targeted
The attorneys general have been negotiating with each bank separately but pressing for similar terms. The state officials have been focusing on the three largest servicers - Bank of America, J.P. Morgan Chase and Wells Fargo - hoping agreements with those companies will serve as a model for others.
Each side sees a fund for distressed homeowners working differently. Among the most contentious issues, besides how much each lender would contribute, are the time period to be included and who would decide which homeowners deserved access to the fund.