Five Reasons Why 'Servicer Safe Harbor' Would be Bad for America

NEW YORK, April 28 /PRNewswire/ -- The Senate is now considering H.R. 1106,
the Helping Families Save Their Homes Act of 2009, which the House passed in
March. H.R. 1106 includes a provision that would protect servicers of
mortgages (the companies, usually banks, that receive the monthly payments and
handle the paperwork on mortgages) from lawsuits by the investors who actually
own the mortgages. According to Grais & Ellsworth LLP, there are five reasons
why "servicer safe harbor" would be bad for America.

1. "Servicer safe harbor" would protect perpetrators, and hurt victims, of the
housing crisis. The servicers that demand "safe harbor" are mainly the Big
Four Banks, Bank of America, Citibank, JP Morgan, and Wells Fargo. They are
among the banks that created the housing crisis by making millions of often
predatory mortgage loans just a few years ago. Giving them "safe harbor" would
further hurt their victims: homeowners, from whom the Big Four try to extract
fees and higher monthly payments when they modify mortgages; and investors in
the housing market, who have already lost hundreds of billions of dollars on
mortgages the Big Four sold them and stand to lose billions more from
"servicer safe harbor."

2. "Servicer safe harbor" would not help homeowners. The Big Four Banks charge
a percentage of the principal amount of mortgages they service. Naturally,
when the Big Four modify mortgages, they try to keep the principal high to
keep their servicing charges high. Sometimes they even increase the principal
by adding the extra fees they charge borrowers who fall behind. But experts
agree that mortgage modifications work best when principal is reduced so the
owner gains equity in the house. Investors in the housing market are ready to
reduce principal to give homeowners equity. "Servicer safe harbor" would let
the Big Four Banks continue to interfere with workable modifications.

3. "Servicer safe harbor" will cost ordinary Americans billions in their
pensions, 401(k) plans, and savings. The Big Four and other banks that made
millions of subprime mortgage loans did not lend their own money. They raised
the mortgage money from investors like pension funds, money market funds, life
insurance companies, and others in which millions and millions of ordinary
Americans have a stake. These stakeholders have already lost hundreds of
billions of dollars from the housing crisis. "Servicer safe harbor" will cost
them billions more by letting the Big Four Banks give away their money for the
benefit of the banks, not homeowners.

4. "Servicer safe harbor" is a stealthy second bailout of the Big Four Banks.
The Big Four Banks would use their "safe harbor" to modify so-called first (or
senior) mortgages. That's easy for the banks, because they do not own those
senior mortgages, investors do. But the Big Four do own over $400 billion in
second (or junior) mortgages. By law, a junior mortgage should be modified
before a senior one. The main, but rarely mentioned, reason the Big Four
demand a "safe harbor" is to protect them while they modify the senior
mortgages they do not own while preserving the junior mortgages they do own.
If the Big Four followed the law and modified their own junior mortgages
first, they would lose so much money they would have to ask Congress for
another bailout. Knowing that Americans will not pay for another bailout, the
Big Four want Congress to protect them as they bail themselves out stealthily
at the expense of America's pension funds, mutual funds, life insurance
companies, etc.

5. "Servicer safe harbor" will make mortgages harder to get for years to come.
The private mortgage market in America is funded not by the Big Four Banks,
but by the same investors that "servicer safe harbor" will hurt. If we want
these investors to provide money for mortgages in the future, we should not
let the banks shift even more losses to them now.

SOURCE Grais & Ellsworth LLP

David Grais of Grais & Ellsworth LLP, +1-212-755-0100,
dgrais@graisellsworth.com