House Panel Backs Legal Protections For Mortgage Firms

WASHINGTON - April 24 2008 - A U.S. House panel on Wednesday voted to shield mortgage-service firms from lawsuits if they work to modify certain loans for struggling homeowners.

The House Financial Services Committee approved legislation creating a “safe harbor” for firms that are trying to alter the terms of mortgages that are facing foreclosure. The goal is to encourage servicers to do more to modify loans without the fear of lawsuits from investors in mortgage-backed securities and other pooled mortgage assets.

“It will encourage more servicers to participate and for those that don’t want to participate it will remove the excuse,” Committee Chairman Barney Frank, D-Mass., told reporters.

Housing groups have complained about the slow pace of voluntary modifications by mortgage firms, blaming the reticence in part on a fear of lawsuits from investors who hold the mortgage-backed assets. The legislation approved Wednesday wouldn’t abrogate existing contracts, but it would say servicers were fulfilling their fiduciary duty by working out loans.

Associated Press