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Senate Passes Bill Giving Servicers 'Safe Harbor' for Loan Modifications of Securitized Mortgages

May 8, 2009

The U.S. Senate has approved legislation preventing lawsuits against mortgage servicers granting modifications to certain mortgage loans, Bloomberg News reported May 6. The bill assures servicers that they will not face lawsuits if they modify securitized mortgages -- mortgages that have been combined with other loans and sold as investments -- involved in the Hope for Homeowners foreclosure-prevention plan. This is intended to help correct the economic downturn by making loan modifications easier to get, thus preventing more foreclosures of troubled homes. The bill also overhauls Hope for Homeowners, with provisions intended to streamline the process and give federal authorities more flexibility.

The "safe harbor" provision is important to Southern California loan modification lawyers like us because the threat of lawsuits can stop a loan modification altogether. When a mortgage is securitized, the original lender sells its stake in repayment to investors. Those investors then have an interest in making sure the full value of the loan is eventually repaid -- which gives them a stake in any changes to that loan. Mortgage servicers, which administer the loans and collect payments, can be sued if they make decisions the investors believe harms the value of the loan. This has contributed to the mortgage crisis by making servicers and lenders very reluctant to agree to any modification, even those that are in their own best financial interests.

As Costa Mesa loan modification attorneys, we believe this is great news for homeowners with securitized mortgages and loan trouble. It may also be good news for lenders, who are increasingly reluctant to foreclose as the market is flooded with bank-owned properties that won't sell. Even when these lenders agree that stopping a foreclosure makes sense, fear of a lawsuit may stop them from approving a loan modification. The "safe harbor" plan only helps homeowners participating in Hope for Homeowners, so it won't solve this problem for everyone. But, if successful, it could pave the way for broader efforts to save thousands of homes and correct the downturn in the housing market.

Howard Law LLP has an active practice helping homeowners -- with or without securitized mortgages -- win loan modifications from their lenders. Frequently, clients come to us after they've spent weeks leaving unanswered messages with their banks or sitting on hold with representative after representative who cannot help. We cut through that red tape by making sure lenders know that we understand our clients' legal rights -- and are willing to sue to enforce them, if necessary. Our Lakewood loan modification lawyers have successfully negotiated for changes to the structure of clients' loans, their interest rates, repayment periods and other terms. If you know you need help getting through to your mortgage lender and you'd like to learn more at a free, confidential consultation, please contact Howard Law online or call us today at 1-800-872-5925.