MBS Servicers Want to Sell Bad Loans Under TARP

The American Securitization Forum is working on a proposal that will allow MBS servicers to sell delinquent mortgages through the Treasury's Troubled Asset Relief Program. "We believe there is significant opportunity for TARP to purchase individual distressed loans out of mortgage-backed securities trusts, which would give the Treasury Department unlimited discretion to modify the loans," ASF deputy executive director Tom Deutsch told the House Financial Services Committee. The idea comes in the wake of an announcement by the Treasury Department that it likely will not be spending much money on buying troubled mortgage assets after all. Mr. Deutsch noted that whole loans in securitized trusts are not usually sold because of legal, tax, and accounting constraints. However, ASF is trying to work through those issues. "There are opportunities and obstacles for servicers to sell individual distressed loans at discounts to Treasury," he said. "We expect to report out some initial progress on this initiative at the end of this week." Even though Treasury may not spend much of the $700 billion to buy mortgages, Secretary Henry Paulson noted that his agency might engage in what he called "targeted" mortgage purchases.