Mortgage investors fear safe harbor law
Big pension funds and other mortgage investors scored a huge victory earlier this year when they were able to kill the push for mortgage cramdowns, but the quiet passage of a so-called servicer
As part of a larger housing bill, President Obama signed a provision granting special legal protection to mortgage servicers that modify loans under the administration's Making Home Affordable plan and the Federal Housing Administration's foundering Hope for Homeowners program.
Advocates say giving servicers more legal protection will decrease the number of unnecessary foreclosures, mitigating the next wave of defaults that are expected to hit in the next few years. Safe harbors "ensure a more efficient process for assisting troubled borrowers," says John Courson, president of the Mortgage Bankers Association.
Mortgage investors don't like modifications because lower interest payments for borrowers means less money or even losses for them. These investors, including major pension managers, mutual funds and life insurance companies, recently stepped up lobbying efforts to curb Washington's modification push.
Servicers have inherent conflicts of interest, they say. The four biggest U.S. banks, Bank of America, Wells Fargo, Citigroup and JPMorgan Chase, underwrote more than half of the second liens guaranteed by FDIC-backed banks. They also service 60 percent of first-lien mortgages in the U.S.
Modifying a first-lien mortgage so borrowers can
