Securitization Forum Provides Guidance on Modifications
The American Securitization Forum provided subprime lending guidance on issues that included loan modification and urged caution on the possible expansion of mortgage assignee liability at its annual meeting here last week.
In regard to assignee liability, the ASF stressed in a 39-page June position paper that it believes responsibility should be focused on the primary market but it also suggested a national framework to the extent that the secondary market may be further affected.
The Federal Reserve on June 14 plans to hold a Homeownership and Equity Protection Act-related hearing that secondary market participants believe could result in the expansion of the law. (ASF officials said the paper was not necessarily in response to this but to asset liability concerns in general.)
Secondary market players generally do not make or buy HOEPA loans and an expansion of the law could cause more of them to abandon another defined section of the market, some speakers said. There may be some question as to whether this is truly regulators' intent - if it is, however, this may be acceptable to them, said Faith Schwartz, a senior vice president at B&C lender Option One Mortgage Corp. in a session on subprime mortgage finance public policy.
Meanwhile, in its subprime lending guidance, the forum also provided a "statement of principles, recommendations and guidelines for the modification of subprime residential mortgage loans that are included in a securitization."
Among the statement's contents was opposition to "any across-the-board approach to loan modifications" with the exception of standardization of loan modification language in securitization documents. (More details of the ASF's guidance on the issue can be found on the group's website, www.americansecuritization.com.)
Loan modification efforts - which the ASF identified as one key issue when it comes to subprime concerns - should be for the long term and investors should know about them, Federal Deposit Insurance Corp. chair Sheila Bair stressed at the ASF's meeting.
"If a loan modification puts a borrower into a loan that they can afford, and the details about that modification are disclosed, we believe this will create additional market pressure for sustainable loan restructuring," said Ms. Bair.
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