Sheila Blair, FDIC chairman, announced Friday a new proposal to resolve the foreclosure fraud issues that have arisen, particularly in Florida, a judicial foreclosure state. It is being presented as a settlement of the fraudulent issues by the five major mortgage servicers. The nation-wide “cash for keys” program would provide homeowners up to $21,000 to voluntarily leave their home. I would presume that the program would require the homeowner to also waive any legal rights and claims against the mortgage company.
Interesting idea. Now the homeowner would have the funds to pay a down payment on a new performing loan on probably a less costly and more affordable home. Somehow they would be expected to qualify for financing despite the hit their credit will take giving up the present home.
Please note this is only a proposal (not a law or anything yet), and the banks strongly object to it. It is being targeted to only those homeowners who are 90 or more days delinquent. It is a step toward winding down HAMP which is expected to occur in the next year or two. Other proposals being discussed may include a menu of options available to a servicer including “cash for keys” or principal write down. There are a number of parties involved though for an agreement to be reached. The parties raising claims include the Department of Justice, all 50 state attorney-general, various banking regulators, the FDIC, the Treasury, and the new Consumer Financial Protection Bureau. You then have an industry full of banks and mortgage servicers on the other side.
Popular blogger Mish asks what kind of moral hazzard would such a proposal raise? More bailouts.