The foreclosure claims commission envisioned by Bair would follow the model used to settle claims arising out of the BP oil spill and the events of 9/11. It would be set up and funded by servicers to address claims submitted by homeowners who have wrongly suffered foreclosure through servicing errors. Bair said that many in the servicing industry will resist such a settlement because of the immediate financial cost, "but every time servicers have delayed needed changes to minimize their short-term costs, they have seen a deepening of the crisis that has cost them - and the rest of us - even more."
In addition to the commission, Bair outlined a number of other actions and changes she believes should be made.
Establish enforceable requirements that will improve opportunities for homeowners to avoid foreclosure, including a single well trained and adequately compensated human point of contact for ever borrower; one with access to relevant information and authority to table the foreclosure process while loss-mitigation efforts are going on.
Require servicers to staff and train for effective less mitigation with industry benchmarks for maximum case load and minimum standards of training.
Manage conflicts of interest arising out of second-lien situations. She suggests developing a fixed formula to govern the treatment of first and second mortgages when the servicer or its affiliate owns the second lien. The formula would, at a minimum, require the subordinate lien to be reduced pro-rata to any change in the first mortgage.
Give borrowers the right to appeal any adverse denial of a loan modification request to an independent third party with power to correct erroneous determinations.
Stop weak practices associated with title documentation including requiring banks and other servicers to foreclose in their own rather than MERS name and provide complete chain of title in the notice of default.
Address those flaws in financial incentives that are not embedded in contracts and thus alterable. For example, a broad settlement could eliminate incentive payments to law firms for speedy foreclosures, prohibit foreclosures when a loan is in loss mitigation and stop the unwarranted use of lost-note affidavits.
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