Moody's Analytics Chief Economist Mark Zandi said he supports a fund financed by the mortgage industry to compensate victims of improper foreclosures and modifications. Zandi testified Thursday before the Senate Budget Committee on the state of the economy and possible proposals for fixing housing policy in the U.S. He focused on the rising levels of repossessed homes and recent issues with the foreclosure process. In October, lenders froze foreclosures when employees were found to be signing thousands of affidavits without a proper review of the documentation as required by law in 23 states. The 50 state attorneys general and several federal regulators launched investigations that are still pending. While speaking at the Mortgage Bankers Association summit on the future of mortgage servicing, Federal Deposit Insurance Corp. Chairman Sheila Bair proposed the idea of a foreclosure claim fund for victims of the robo-signing scandal. Zandi now agrees, suggesting changing the entire loss-mitigation process to include a third-party review before foreclosure, and to provide homeowners with a single point of access when pursuing a loan modification. He added that the fund would act as a deterrent to future malpractices. "This will provide a stronger incentive to the industry to make sure the process is working properly and fairly," Zandi said. Zandi echoed many other lawmakers and analysts who have said the servicing industry is overwhelmed with the amount of delinquent loans in need of loss mitigation help. He pointed out from his research that in recent quarters, banks "appear increasingly interested in pushing distressed loans into foreclosure and resale, regardless of the prices they are receiving." This, he said, was a big change from a year ago (see chart below on rising REO levels). In late 2009, lenders slowed the foreclosure process as they tried to figure out how much capital they would need to compensate for the credit problems. Rebecca Mairone, Bank of America's (BAC) default executive of home loans, said Thursday when the bank released its modification numbers, that the roughly 285,000 permanent modifications completed in 2010 shows "the tireless and meaningful efforts of our default servicing teams." But Zandi wants to put up more roadblocks to keep banks from cutting corners once they decide to foreclose. "The affidavit-signing scandals have been only the most recent example of these problems. The implementation of a wide range of government-designed programs to help facilitate loan modifications, refinancings and short sales has not gone well because of their extraordinary complexity, the fact that they have changed a number of times, and the inadequate resources devoted by the mortgage servicers," Zandi said. "Many distressed homeowners have been very frustrated and poorly treated by the mix-ups and mistakes." Write to Jon Prior. Follow him on Twitter: @JonAPrior