Legislative Proposal Protecting Servicers When Modifying Defaulted Home Loans Making Mortgage Execs Uneasy

In Washington, D.C., Reuters reports:

• Leaders of the mortgage industry are uneasy with a plan that would give home loan servicers legal protection if they try to help troubled borrowers avoid foreclosure, lawmakers heard on Tuesday. Such a step could discourage mortgage investment and "potentially threaten the stability and predictable operation of ... our capital market system," the American Securitization Forum, a mortgage investing trade group, told a congressional hearing.

• Home loans originated by banks and other mortgage retailers are typically bundled and sold to investors as new securities overseen by mortgage service companies. If a borrower is in danger of defaulting, the mortgage service company has broad power to rewrite the loan but investors may still sue if they second-guess those changes.

• Legislation sponsored by Rep. Paul Kanjorski and Rep. Mike Castle would shield mortgage servicers from such lawsuits. "Without this legislation, I am concerned that lawsuits could bring modifications to a halt," Castle, a Delaware Republican, said this week of his legislation.

For more, see Mortgage sector uneasy with loan rewrite plan.

See also, The Associated Press: Lawmaker Steps Up Modification Pressure. questionable mortgage servicing practices tactics xero MortgageServicingIssuesAlpha