WASHINGTON A Federal Reserve official has voiced approval for a fund that would compensate borrowers whose homes were improperly foreclosed upon.
Fed Gov. Elizabeth Duke told a House subcommittee Thursday that she supports the idea, which has been discussed in meetings between state attorneys general and banking industry officials.
The committee hearing focused on allegations that major banks used flawed foreclosure documents to seize homes. The central bank and other banking regulators are investigating the issue.
I think it would be very positive if there was a mechanism to deal with these problems as they came forward, she told the panel.
State attorneys general, who are conducting a separate investigation, are seeking a settlement with the mortgage industry that also would overhaul other industry practices, such as modifying loans for struggling homeowners.
The fund would be modeled on the one created for victims of the BP oil spill.
Duke said the financial system and some home borrowers could be hurt by the documents problem, which ultimately could impose huge costs on banks.
Mortgage operations officials from several of the biggest U.S. banks also testified. They promised to make every effort to keep people in their homes with modified loans, keeping foreclosure only as a last resort.
I regret the errors that occurred, and we have been working hard to fix them across the board, said Thomas Marano, CEO of mortgage operations at Ally Financial Inc., formerly known as GMAC Mortgage.
The officials also from Bank of America Corp., JPMorgan Chase & Co., Citigroup Inc. and Wells Fargo & Co. said they dont believe any documents errors led to foreclosures that would not have occurred otherwise.
Rep. Maxine Waters, D-Calif., head of the Financial Services housing subcommittee, questioned why it took so long for bank officials to detect the problems. She waved a stack of affidavits of bank employees saying they signed flawed documents, used false notarizations and operated without any manuals on foreclosure procedures.
Still, Waters reserved her sharpest criticism for regulators.
You havent done anything to show us that youre serious about assisting the homeowners, she told John Walsh, acting comptroller of the currency, whose agency oversees national banks.
Walsh said banks greatly improved the quality of their programs to modify home loans after the agency stepped up its examinations of the institutions and encouraged them to work with struggling borrowers.