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“Safe Harbor” Bill May Lead to More Lender Abuse

Mortgage researchers are objecting to a new bill aimed at protecting loan servicers, saying the legislation will only pave the way for more lender abuse and unreasonable loan modifications.

The bill proposed a “safe harbor” plan that would allow banks to grant loan modifications without putting investors at risk. According to supporters, this will help control the investor lawsuits currently plaguing major lenders like Citi and the Bank of America.

However, a report from the Amherst Securities Group showed that most of these loan mods are just repayment programs that actually increase the fees paid to lenders rather than reduce the balance. Some lenders, the study found, would modify loans that were clearly unqualified to keep the servicing fees coming in.
 
New York-based law firm Grais & Ellsworth LLP claims that the bill is just a variation of the government bailout aimed at the Big Four banks: Bank of America, Citi, Chase, and Wells Fargo. The company’s lawyers explained that instead of providing real solutions for borrowers, lenders are simply keeping up the principal balances in order to increase revenue from servicing fees.

The safe harbor, they added, will affect not only mortgage loans but also pensions, savings accounts, and 401(k) plans. And as the banks lose vital investors, even stable home buyers may have trouble obtaining financing in the future.

Almost 50% of the loans modified in late 2008 fell into default after only eight months, a trend that experts blame on abusive lender terms.

 

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