WASHINGTON – In a House hearing yesterday examining the role of the private sector in mortgage modification, Rep. Barney Franks (D-Mass.) all but promised legislation next year aimed at giving mortgage servicers legal authority to renegotiate troubled loans.
Franks said that while the private sector has made encouraging steps to resolve the mortgage crisis, mortgage servicers have been sitting on the sidelines.
Franks, who explained that servicers face a serious obstacle in modifying mortgage loans because they lack the legal authority to do so, said legislation is needed and that Congress has to restructure the servicing mechanism.
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Servicers have said that pooling and servicing agreements often place strict limitations on modifying mortgages and that servicers' fiduciary duty to investors prevents them from modifying loans without investor permission-permission that is rarely granted.
Some states have already moved forward on the issue. Last week, Maryland's Gov. Martin O'Malley announced an agreement with six of the state's largest mortgage servicers to pursue and encourage policies including staff incentives that encourage loan modification rather than foreclosure.
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