Foreclosuregate Update: Victim Compensation Fund In Negotiation

Posted by AzBlueMeanie:

For a better understanding of the Foreclosuregate scandal, I recommend this interview at Bloomberg News http://www.bloomberg.com/video/64555006/ (sorry, no video embed).

New York City Comptroller John Liu discusses his request, on behalf of the city’s Pension Funds, to directors at Bank of America Corp., Wells Fargo & Co., JPMorgan Chase & Co. and Citigroup Inc. to conduct independent audits of their banks’ mortgage and foreclosure practices. Liu speaks with Carol Massar on Bloomberg Television’s “In the Loop With Betty Liu.”

In other developments, the 50 state attorneys general and the country's biggest lenders are in negotiations to create a nationwide fund to compensate borrowers who can prove they lost their home in an improper foreclosure. States, mortgage lenders in talks over fund for borrowers in foreclosure mess:

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.

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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."

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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.

Even as they acknowledged some problems in their foreclosure processes, executives from the biggest banks have argued that they are properly seizing homes from borrowers who missed payments. But the courts are still grappling with whether the sloppy or forged paperwork in many foreclosures amounted to fraud and whether those cases should be thrown out.

At a hearing of the Senate banking committee Tuesday, Chairman Christopher J. Dodd (D-Conn.) took banks to the task.

"Many in the industry were too quick to call these problems 'technical' and to insist that nobody is losing a home to foreclosure without cause," Dodd said.

He called all parties involved to work together to "finally put an end to the housing crisis."

"Even the industry now acknowledges that the current mortgage-servicing business model is broken and is simply not equipped to deal with the current crisis," Dodd said.

Added Sen. Jon Tester (D-Mont.): "I'm going to remain very concerned about the scope of this problem, the impact it could have on our financial system and on the housing market. . . . It strikes me that some of the biggest servicers have been a little bit glib about [the] potential magnitude of these risks."

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One senator after another recounted tales of homeowners expressing their frustration with the mortgage-modification process. Many have been confused by the fact that even as they try to negotiate modifications with servicers, the foreclosure cases pending against them continue unabated.

Miller, the Iowa attorney general, said Tuesday that the multi-state probe would seek to end such practices.