It has seemed like just about everyone is taking issue with the federal proposal for a settlement between lenders, borrowers, attorneys general and the government in the wake of the robo-signer fiasco. However, nearly everyone agrees that some type of settlement must be reached in order for consumer confidence in lending to be restored. However, just what that settlement should entail has been highly disputed, ranging from forced principal reductions to massive payouts to more lender bailouts. Suffice it to say: nobody’s really happy.

Now, the FDIC believes it may have a new solution: a cash-for-keys option that could pay delinquent borrowers up to $21,000 to move out[1]. Perhaps not surprisingly, when Sheila Barr, FDIC chairman, announced this proposal late last week, it was not well received. However, Barr and supporters insist that this could be a way to “teach mortgage servicers a valuable lesson” while still alleviating the threat of stagnation to the housing recovery[2]. Distressed homeowners could turn in their keys and leave homes quickly in good condition. Lenders would be able to return the homes to the market much faster and likely get a better return on the property when it sold. However, this money has to come from somewhere, and there are some reports that Fannie Mae and Freddie Mac could be involved in the settlement – thereby tying up more taxpayer dollars in a period of time when the government-controlled GSEs are supposed to be phasing out.

Do you think that this elevated cash-for-keys incentive might work to satisfy lenders and borrowers? Is it fair, given that the people potentially injured by the robo-signer fiasco are largely already out of their homes?