The Obama administration has signaled that it is in favor of taking money from fines paid by big banks and using it to pay for mortgage modifications. Big mortgage lenders have been caught over and over again with shoddy foreclosure documentation. A common practice used by big banks has been employing robo-signers who sign foreclosure documents without verifying their accuracy.

The federal government and state attorneys general are in negotiations to reach a settlement on fines that will be paid by mortgage lenders that have had systematically inadequate documentation for foreclosures.

The banks are hoping for a settlement that will resolve all of their documentation issues in one fell swoop. Otherwise, they face the prospect of litigating every single documentation problem with homeowners one by one.

Neal Wolin, Deputy Treasury Secretary, recently said that negotiations on a settlement are continuing. When he was asked about the prospect of using bank penalties as a means of encouraging loan modifications, he said it was definitely on the table.

"I think it is possible. I think there are a range of different ways that we have been thinking about this. Where exactly it will rest in the end, I don't know," he said.

Fort Lauderdale mortgage option attorneys have heard that different federal agencies have differing ideas on what form a potential settlement should take. One agency, though, the new Consumer Financial Protection Bureau, wants the banks to pay around twenty billion dollars in fines.

Source: Reuters "Foreclosure fines may go to loan modifications" 2/28/2011