With its members in town to lobby this week, the Mortgage Bankers Association is stepping up opposition to legislation that would allow a bankruptcy judge to reduce the amount owed on a foreclosed house to its actual market value. But the group is taking a more neutral approach to a competing measure that removes legal liability for loan servicers that restructure them on their own, language that could have a better chance of passage. The association led the opposition against a bill by Senate Majority Whip Durbin that would allow judges to change the terms of a mortgage in foreclosure, arguing investors would be reluctant to fund home loans if they were not guaranteed a specific rate of return. The Senate tabled the Durbin measure, 58-36, during debate this month on a housing-stimulus package. Proponents hope to attach a companion version by Rep. Brad Miller, D-N.C., to a House housing-stimulus package being assembled, though its chances for inclusion in a final package appear slim. House Financial Services Chairman Barney Frank believes it is unlikely the House would take up the Miller bill as part of a broader package given the Senate vote, according to his spokesman. But the final decision rests with House Speaker Pelosi, who supports Miller’s efforts.
Advocates for borrowers are pitching a milder bill by Rep. Michael Castle, R-Del., that would provide a legal safeguard for servicers who adjust the terms of a troubled loan, including its principal or interest rate. The association has not staked out a stance on the Castle bill, said Erick Gustafson, senior vice president of legislative and political affairs for the group. The association has primarily advocated voluntary steps that lenders have taken to help at-risk borrowers. “On one hand, clarity on contracts is a good thing where we have the ability to understand what type of modifications and how many modifications can be made,” Gustafson said. “On the other hand, the concerns about diminishing investor confidence through modifications — be they through servicer actions or court-imposed modifications — would not be a positive development for liquidity in the market.”
This article appears in the April 19, 2008, edition of National Journal Daily PM Update.