Negotiations are currently underway in regards to a national compensation fund for bank foreclosure victims. The negotiations are taking place between all 50 of the state attorney generals, bank regulators, and several of the country’s biggest lenders. These lenders include J.P. Morgan Chase, Bank of America, Wells Fargo, Citigroup, and Ally Financial (formerly known as GMAC Mortgage).
The fund is supposed to compensate homeowners who may have been illegally foreclosed upon by banks and other lenders. This solution is also designed to help the lenders to avoid lengthy and costly court cases. Additionally, it’s supposed to help stabilize the housing industry by removing the current foreclosure freeze. Moreover, it’s supposed to help clear up the congestion of court cases clogging the judicial system in all 50 states and downscale any future lawsuits involving foreclosure fraud. The current judicial system isn’t set up to properly adjudicate the massive amount of foreclosures that are occurring nationwide.
Details still need to be worked out
The state officials and mortgage lending industry representatives agree that a financial remedy is essential to preventing further homeowner turmoil. However, it may take several months to reach an agreement and work out all the details. Each side has a different viewpoint as to how the fund should be administered, who should benefit from it, and what proof they’ll need. The two sides also have differing views as to how much each lender should contribute to the fund and what size the fund should be. Moreover, they have varying ideas of how much time should be allowed for filing claims and the payment of claims.
Both sides want to end the housing crisis as soon as possible. Both sides also want to see improvements made to the foreclosure and mortgage servicing processes. However, this also leads to more unresolved issues. For instance, reduction of principle for homeowners who are now “under water” is one of the unresolved issues. Additionally, many officials would like to see bankruptcy judges be permitted to order loan modifications. Basically, the main differences arise from the state officials wanting the lenders to reform their loan and foreclosure processes to be more fair to homeowners, while the banks want the legal end of the processes to be modified in order to expedite foreclosures. Expediting the legal process of foreclosure could cover up vast amounts of fraudulent and illegal banking activities, as well as make it even easier for banks to foreclose on property they may not even own a lien to.
Numerous state officials think these types of issues should be addressed by the fund along with several other mortgage fraud issues that have led to the massive amount of foreclosures. Another unresolved issue is how all the foreclosure cases that involve sloppy or fraudulent paperwork should be dealt with on a legal basis. Yet another unresolved issue is how the loan modification process will work in conjunction with foreclosure processing. Currently, many lenders initiate both procedures simultaneously, rather than waiting to see if a loan modification will make foreclosing unnecessary. Moreover, the state officials want lenders to address the issue of servicing fees during the loan modification process.
Why big banks are agreeing to create a compensation fund