Servicers of private-label mortgage-backed securities are concerned that some investors are preparing to sue them for approving loan modifications, according to the Consumer Mortgage Coalition."We are aware of securities holders that have begun scrutinizing the actions of servicers and the ways the servicers' actions have allegedly improperly hurt the interests of the securities holders by insufficient adherence to the [servicing contract's] restrictions on modifications and related actions," CMC says in a letter to Sheila Bair, chairman of the Federal Deposit Insurance Corp. The FDIC chief recently said she is "frustrated" with the slow pace of modifications to help subprime borrowers avoid foreclosure. The CMC letter also points out that "global" remedies, such as forgoing interest rate increases on 2/28s and 3/27s, would violate servicing contracts. "We believe that the 'loan by loan' methods we use are appropriate and allow all the stakeholders -- the borrower, the investor and the servicer -- to reach the correct outcome…," CMC executive director Anne Canfield says in the Oct. 6 letter.

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