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How will banks pay back on foreclosures?

The federal government recently ordered 16 of the nation's largest mortgage lenders and servicers to reimburse homeowners who were improperly foreclosed upon. Government regulators also directed the financial firms to hire auditors to determine how many homeowners could have avoided foreclosure in 2009 and 2010.

Citibank, Bank of America, JPMorgan Chase and Wells Fargo, the nation's four largest banks, were among the financial firms cited in the joint report by the Federal Reserve, Office of Thrift Supervision and Office of the Comptroller of the Currency. Under the agreements reached, the lenders and servicers have 45 days to hire an auditor and will "remediate all financial injury to borrowers caused by any errors, misrepresentations, or other deficiencies." There is no minimum or maximum dollar amount identified.

“I think the key will be how the lenders define the statement ‘remediate all financial injury to borrowers,’" says William J. Horan, an attorney at Horan & Wagner, P.C. in Commack. “Merely returning three mortgage payments for a total of approximately $10,000 for instance does not make up for losing a house due to the illegal actions of the lender or servicer.”

Horan says he believes that a meaningful modification from the get-go could have helped many of people stay in their homes.

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