States, Lenders Work To Create Foreclosure Fund

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State attorneys general are negotiating with some of the nation's largest mortgage lenders to create a fund that would compensate people who lost homes in an improper foreclosure. Details are still being worked out, and it's not clear how an "improper" foreclosure is defined.


Now to a new development in the foreclosure mess. For the first time, there's talk of a compensation fund for people who lost their homes in foreclosures that should not have happened. State officials have been investigating sloppy paperwork at the nation's biggest lenders, and the banks acknowledge they made mistakes with some foreclosures.

As NPR's Yuki Noguchi reports, there are big questions about how a compensation fund would work.

YUKI NOGUCHI: Think of the fund set up for victims who died in the September 11th terror attacks or BP's compensation fund set up to help those affected by the oil spill in the Gulf of Mexico. This one would benefit those who could prove that they wrongfully lost their home because of bank errors.

Goeff Greenwood is spokesman for the Iowa attorney general. He says that is just one of the things the state attorneys general are considering, in discussions with all the major lenders.

Mr. GOEFF GREENWOOD (Spokesman, Attorney General Office, Iowa): We've made no secret that there should be a remedy for what has occurred. We're still in that phase of trying to figure out how extensive this is, but we do know that once we get our arms around it, then we need to address it. We need to come up with remedies.

NOGUCHI: Greenwood says compensation fund discussions are at an early stage; nothing, including its size has been determined. But the AGs are also considering appointing an independent monitor to oversee bank handling of foreclosures.

But do the banks support the idea of a fund? Greenwood is not entirely sure.

Mr. GREENWOOD: I'm sure they have concerns about this whole process.

NOGUCHI: Representatives from Bank of America, JP Morgan Chase, and Ally Financial - an NPR underwriter - declined to speak on tape. They said they are discussing the investigation and possible remedies, but declined comment on the idea of a victims' fund. Earlier this month, JP Morgan appointed an independent monitor.

Iowa attorney general spokesman Goeff Greenwood said each foreclosure case is complex, that discussions involve different interests of the states, as well as lenders and loan servicers.

Mr. GREENWOOD: I can't begin to tell you the number of challenges that we are facing in this situation.

NOGUCHI: He says no decision is imminent.

Yuki Noguchi, NPR News.

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