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Mortgage servicers have been caught red-handed submitting fraudulent foreclosure documents in court, giving the states far greater legal leverage: The joint state foreclosure probe could prove far more effective. It covered only two kinds of loans, pay-option and hybrid ARMs, and it tried to restore equity to homeowners over five years, which doesn't help people in the short term. As initially rolled out, however, that program had severe limitations. A threatened lawsuit by Massachusetts AG Martha Coakley induced Bank of America (BAC) in March to cut loan balances for eligible borrowers by up to 30 percent. Some states have previously sought to force banks to modify mortgages, with occasional success. homeowners, or 12 million households, are " underwater." But that does little to address the core problem driving foreclosures - the growing number of borrowers who owe more on their mortgages than their homes are worth. Unwilling to swallow the loss from such writedowns, they prefer to reduce a loan's interest rate or extend its life.

A major reason foreclosures have soared since 2007 is that lenders have resisted reducing loan principals. This is an important - and positive - turn in this affair.

Establishing a mechanism for more effective independent monitoring of future mortgage foreclosure practices.

Evaluating potential remedies for past practices and to deter future improper practices.

Reviewing past and present practices by mortgage servicers subject to the inquiry.

Putting an immediate stop to improper mortgage foreclosure practices.

Since this issue affects peoples' homes and has clear economic implications, this probe and its outcome need to be fair both to homeowners and also to lenders. This group has the backing of nearly every state in the nation to get to the bottom of this foreclosure mess, and we plan to work together as thoroughly and expeditiously as possible. Said Iowa AG Tom Miller, who's leading the investigation, in a statement today:

The probe will initially focus on identifying which financial institutions filed improper foreclosure documents, but could expand to look at other problems. Will a Foreclosure Freeze Fix the Housing Market?ĥ0 States Launch Joint Probe into Foreclosures.Why We Need a National Freeze on Foreclosures.Is Your Lender Taking Advantage of You?.Don't Be Driven to Foreclosure by Mortgage Fraud.How the Foreclosure Mess Could Hurt the Housing Market.