Lawmakers Press Regulators About Second Liens

Posted by Orb Staff on July 13, 2009 No Comments
Categories : Mortgage Servicing

Banking Committee Chair Chris Dodd, D-Conn., and House Financial Services Committee Chair Barney Frank, D-Mass., have sent a letter to the heads of bank regulatory agencies asking them to address whether banks are inflating the value of second mortgages on their balance sheets. Banks' failure to update their balance sheets to reflect the true value of second liens in a declining housing market will cripple the government's Hope for Homeowners (H4H) program, Dodd and Frank say. Copies of their letter were sent to Federal Reserve Chair Ben Bernanke, FDIC Chair Sheila Bair, Comptroller of the Currency John Dugan, OTS Acting Director John Bowman and NCUA Chair Michael Fryzel. "In recent discussions with servicers, investors in mortgage-backed securities and administration officials, it has become clear that one of the most significant impediments to the success of H4H is the unwillingness of subordinate lienholders to extinguish their liens as required for participation in this program, even in return for offers of reasonable compensation," Dodd and Frank wrote. "This is true, despite the fact that these subordinate liens may have minimal economic value." The lawmakers are concerned that financial institutions' loss allowances for subordinate liens may be insufficient, "especially in light of the historically poor performance of first-lien mortgages and seriously diminished values of the underlying collateral," the letter adds. SOURCE: Office of Sen. Chr

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