By Patrick Rucker
NEW YORK (Reuters) - The U.S. mortgage lending industry is hamstrung by existing contracts as it tries to dampen the current foreclosure crisis, the head of the largest industry-led homeowner assistance program said on Wednesday.
Leaders of the mortgage industry have conceived plans to freeze mortgage rates for troubled borrowers and stall foreclosure in some cases, but all those plans are bound by the original home loans, said Faith Schwartz, who heads an industry-sponsored foreclosure prevention effort called HOPE NOW.
"This is not about doing something that they can't do otherwise and abrogating contracts," she said at the Reuters Housing Summit in New York. "This is all related to the contracts and how they effectively service."
The mortgage servicers that collect a borrower's monthly payments are bound to take steps that are in the interests of the investors who funded the home loan, she said, and that means abiding by the agreements that underpin the mortgage.
Honoring existing mortgage agreements was a challenge as the American Securitization Forum, a HOPE NOW member, crafted a plan that would freeze interest rates for some borrowers facing a big rate spike.
"They are being done without abrogating contracts," Schwartz said. "That is why (the plan) was carefully crafted."
The Treasury Department unveiled HOPE NOW with some mortgage industry leaders in October, and Schwartz said all the partners had been working flat-out since then to develop plans that will curtail foreclosures.
Still, she said, public expectations for HOPE NOW may be inflated. Continued...
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