To clear up mortgage ownership issues quickly, banks and servicers should set up a multi-billion dollar fund to pay homeowners who are willing to accept their ownership of the mortgage note, according to Federal Deposit Insurance Corp. (FDIC) chairman Sheila Bair.
The FDIC chief believes such settlements would be cheaper than re-constructing the missing documentation that was lost during frequent sales and transfers of mortgage-backed securities in the secondary market.
"I think the banks eventually could prove ownership of the loans, but it would take a lot of time and expense," Bair said during an interview on the CBS program '60 Minutes.'
Major bank servicers are currently in settlement talks with federal regulators and state attorneys general over foreclosure processing violations and practices.
In same cases, the courts stopped foreclosures when attorneys could not prove ownership of the mortgages.
Back in January, the FDIC chairman called on the servicing industry to set up a foreclosure claims commission to provide remedies for borrowers who have wrongly suffered foreclosure because of a servicer's errors.
"Many in the servicing industry will resist a settlement such as this because it would impose much of the immediate financial cost on the major servicers themselves. But this would be short-sighted," Bair said at a late January Mortgage Bankers Association servicing summit in Washington.
"The fact is, 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," she said.