Taking a page out of other large scale disasters, state attorneys general and the nation’s largest lenders are negotiating to create a nationwide compensation fund for borrowers who lost their homes in an improper foreclosure. The move is seen as a significant step toward resolving some of the widespread issues of fraud that have only recently come to light. If agreed upon the fund would help banks avoid lengthy and costly court challenges from homeowners while also finding a more efficient means of compensating injured homeowners.
The deal is far from cast, though as neither side has agreed to the size of the fund, who would administer it, and the kind of proof necessary in order for a homeowner to receive compensation. Also, banks are still pushing back against efforts that would force them to reduce the principal for borrowers whose homes have dropped dramatically in value over the past few years.
Despite those challenges, proponents of the fund see this as a significant step toward forcing lenders to modify home loans rather than cramming through the foreclosure practice. Ideally banks would be barred from foreclosing on homeowners while they negotiate some kind of work out–a process that so far banks have been able to avoid, much to the frustration of consumer advocates and homeowners alike.
According to reports, the state attorneys general have been negotiating with each bank separately but pressing for similar terms among the banks. Given that it has been at the state level where the most significant pressure on these institutions has so far been the most effective, there’s reason to believe that these coordinated efforts will play out to the homeowner’s benefit.
Photo courtesy of respres via Flickr