This vote was on an amendment by Bob Corker, R-Tenn., that would require lenders participating in mortgage modification programs for distressed homeowners to consider all mitigation efforts, including foreclosure and refinancing of homes, before qualifying for protection from investor lawsuits. The amendment was offered to a bill that would ease application and eligibility requirements for a $300 billion foreclosure prevention program enacted to help blunt the impact of the economic downturn.
Corker said currently a “servicer,” meaning a bank that is dealing with an at-risk mortgage, only has to compare government rescue programs against foreclosure and evaluate which is better for getting the homeowner out of trouble. He said the servicer does not have to compare government rescue programs against other options such as forbearance (where principal may be reduced), or other options that may be better for the homeowner. This may artificially inflate the number of mortgagees that have to turn to government rescue programs, Corker said, when another less drastic option may serve them better.
Corker’s amendment would modify a portion of the underlying bill that would shield lenders participating in the Hope for Homeowners program from investor lawsuits. Corker said the problem with the provision being modified is that it’s not flexible enough to deal with every homeowner or lender concern, but does “do an excellent job of taking care of the large four banks that do the bulk of the servicing: JP Morgan, Wells Fargo, Citigroup and Bank of America. This bill actually incents them. We are paying them money to do what is in their best interest.”
“I hope everyone will join me in asking these servicers to not just look at what is in their best interest but to actually first look and see what is in the best interest of those people who own the first mortgages and for those people who actually are in these homes who are trying to stay in these homes. There are provisions here that actually make it worse for the homeowner, in that, basically, much of the debt gets pushed off into 5 years and actually defers their paying, actually makes their situation even worse than it is today. But in the short term, it might make it better, again, for these four large banks,” Corker said.
Chris Dodd, D-Conn., said he doesn’t like the situation the country is in either and that Corker has some valid points, but that the reason the provision was drawn up in the way it has been is to ensure that banks and other lenders are sure that they won’t be sued by their investors for modifying troubled mortgages. This would benefit homeowners, but mean less revenues for the lenders and their investors, and possibly open them to a lawsuit.
“Here is the problem: 10,000 people a day are losing their homes; 20,000 a day are losing their jobs. The question is, how can we possibly get the kind of incentives so the bankers, the servicers, the lenders, and the borrowers can modify these mortgages? We now have 11 million homes in this country where the mortgage exceeds the value of the property. If we don’t step up soon, those numbers will explode. We have a moratorium on foreclosures in certain areas, and that is just building up a backlog that if we don’t end up with some means by which that borrower and lender can work out an arrangement that they can modify the mortgage, we will face a cascading effect which most people agree is the root cause of our financial difficulties, beginning with predatory lending and subprime lending that helped create this problem with no-documentation loans, the liar loans and the like,” Dodd said. “If people don’t want to do it, there is no requirement that they do it. We are trying to remove one of the great barriers, and that is the fear of litigation.”
By a vote of 31-63, the amendment was rejected. Of Republicans present, 31 voted for the amendment and 8 voted against it. Every Democrat present voted against the amendment. The end result is that the measure went forward without language that would have required lenders participating in mortgage modification programs to consider all mitigation efforts, including foreclosures and refinancing, before qualifying for protection from investor lawsuits.