Hard to change mortgages to stop defaults-investors
By Patrick Rucker
NEW YORK, May 21 (Reuters) - Little can be done to change the terms of subprime mortgages to prevent foreclosure because of the way loans that were packaged and sold to Wall Street investors, mortgage industry executives said Monday.
Despite calls by lawmakers and regulators for mortgage investors to help borrowers facing foreclosure, the current standards for mortgage finance are just not flexible enough, Michael Marriott, a co-head of Credit Suisse's mortgage group told a mortgage conference.
"For the future, we may be able to rewrite those documents so that they're more modification and remediation-friendly, but unfortunately (today's mortgage-backed security) deals ... and the servicer's hands, in many respects, are pretty tied," Marriott told a secondary-mortgage market conference organized by the Mortgage Bankers Association.
Mortgage servicers, which hold loans after they have been issued to a homeowner, send out monthly bills and oversee a loan after origination. They often hold the ultimate power to determine whether a homeowner can keep their house when a debt nears or is in default.
Troubled subprime borrowers who were granted mortgages despite their shaky credit might be able to save their homes if mortgage investors ease the payment or financing terms, lawmakers and regulators have said.
Such interventions are tough because of the complex financing structures that slice up and package different parts of the mortgage loans into bonds sold to investors, said Tom Lund, Fannie Mae's vice president of single-family mortgage business.
"When we began to look at the complexity of the ownership of these (investments) ... You have tax issues, you have REMIC
(Real Estate Mortgage Investment Conduit) issues and accounting issues (that) makes it very, very difficult to do the right set of things" to help borrowers, Lund said.
Patricia Cook, executive vice president of investments and capital markets at Freddie Mac, said "standardization would be helpful ... I think clearly the market would benefit from some standardization."
Still, she said, mortgage investors often have to balance "flexibility around refinancing those loans with the restrictions that we have."
David Lowman, CEO of Chase Home Lending, the mortgage unit of JPMorgan Chase, said the calls for investors to ease off on troubled borrowers will increase in coming months.
"Once people start realizing that they might not get their principle back, they may want to chance the rules of the game. I think you are going to start seeing that happening. That just has not played out yet," he said.
((Reporting by Patrick Rucker; editing by Tom Hals; Reuters Messaging: rm:// patrick.rucker.reuters.com@reuters.net; e-mail: patrick.rucker@reuters.com; +1-202-310-5474)) Keywords: USA HOUSING/FORECLOSURE
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