WASHINGTON (Reuters) - U.S. lawmakers on Tuesday asked the Securities and Exchange Commission to clarify an accounting rule that may be preventing some institutions from making loan modifications to help subprime mortgage borrowers.
A letter sent by 11 Democrats to SEC Chairman Christopher Cox sought clarification on the rule known as “FAS 140,” which governs asset-backed securitized products like mortgage-backed securities.
At issue is when a mortgage can be modified if it is part of a pool of securities that includes subprime adjustable rate mortgages made to borrowers with a poor credit history.
Lawmakers and federal banking regulators are seeking ways to move subprime borrowers into mortgages with fixed long-term interest rates, but the accounting rule might prove to be an accounting or legal obstacle.
“A number of parties have brought to our attention that FAS 140, the accounting standard that guides securitizations, may not clearly state at what point a loan may be modified,” the congressional lawmakers said in a June 15 letter signed by House of Representatives Financial Services Committee Chairman Barney Frank and 10 other House lawmakers.
The lawmakers said they want to know if a loan might be modified at a point when default is reasonably foreseeable or at a time when default or delinquency has already happened.
“The lack of clarity may be leading some institutions to withhold making some loan modifications that may benefit borrowers -- and bondholders -- for fear of being found in violation of FAS 140,” they said.
The lawmakers told Cox they are seeking clarity because they are concerned about the rising rate of mortgage foreclosures.
Earlier this month the Financial Accounting Standards Board (FASB) said it planned to talk with banks directly about frustrations the rule may be causing.
The rule-making body plans to hold a closed-door “educational forum” later this month with several interested parties to find out if issues about which banks are complaining are related to legal or accounting concerns.
Additional reporting by Al Yoon and Emily Chasan in New York
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