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States Looking at Comp Fund For Foreclosed Homeowners

States Looking at Comp Fund For Foreclosed Homeowners

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.

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Photo courtesy of respres via Flickr

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9:41PM PST on Jan 4, 2011

Noted...thanx :-)

2:10PM PST on Nov 21, 2010

In many cases people could afford their mortgages if they were not adjustable rate. Many people (I read 30%) who took adjustable rate mortgages could have been eligible for regular mortgages but were hustled by mortgage brokers who were under pressure to sell them because banks made so much more money on the adjustable rate interest

12:32AM PST on Nov 19, 2010

Banks should certainly have to follow the letter of the law when it comes to foreclosures - and should also certainly have to compensate those who were illegally foreclosed upon. But only those who were illegally foreclosed upon.

9:41PM PST on Nov 18, 2010

Remind me again why the banksters were bailed out and why black and hispanic kids get jailed for smoking weed but corporate fraudsters laugh all the way to the bank?

8:47PM PST on Nov 18, 2010

For those that put down 10 - 20% for a 15 - 30 year loan, you have my sympathy. You are the ones really screwed by the banks and other mortgage lenders, mortgage securitizers and con men. You are the ones really needing to be compensated. They caused the real estate bubble and got their many millions. You deserve relief for the fall in value of your house.

1:54PM PST on Nov 18, 2010

Yup, a day late and a dollar short.

Our local gas & electric company collected increased fees to maintain pipes. When pipes blew up wiping out homes and their residents, they promptly wanted more money from us--to repair the pipes. Uh huh. The bank is our friend and so is the electric company. Kind of like old story that ends, "It is in my nature to kill."

12:39PM PST on Nov 18, 2010

The banks would lose so much more, were I to just walk away like so many are making the choice to do. No, the taxpayers should not pay, the banks should. By renegotiating the loans on these underwater houses, for people have proved their ability and willingness to make their payments. Again, they knew exactly what they were doing when they issued ARMs and interest only loans to people who had no way to pay them back. The responsible homeowners who had the bad timing to purchase a home during the bubble the banks created, are the only ones losing out on this deal. Banks should share in the consequences resulting from their unbridled greed.

11:49AM PST on Nov 18, 2010

The bailed out banks should be made to pay for this mess. It was their scheming that got potential homeowners in this mess to begin with.

11:14AM PST on Nov 18, 2010

I hope the homeowners can get a skyscraper's worth of money. But by the time everyone takes a cut for "administrative fees etc.," It will be a pittance compared to what they should recieve.

9:44AM PST on Nov 18, 2010

And will banks, like Bank of America, be forced to pay this out of all that bail out money we tax payers provided them or will I have to pay for this, too?

If Bank of America dropped every homeowners balance by $100,000.00 everybody'd be able to keep their homes...

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