Mortgage investors are in an eleventh-hour effort to weaken or derail a Senate measure to grant legal protections to mortgage servicers that modify loans.
The investors, including large insurers, hedge funds and investment managers, say the legal "safe harbor" would violate their rights. They have seized on comments from a prominent consumer group that warned the harbor could have the unintended effect of shielding predatory lenders from lawsuits.
Other major consumer groups — this time finding themselves in alignment with bankers — dismiss this argument, saying the measure would protect servicers only from litigation from investors, not consumers.
The major banking companies that dominate the mortgage servicing market are pushing hard for the harbor, which is contained in legislation to bolster the banking sector and revamp federal programs to help homeowners. The bill is set for a Senate vote as early as Wednesday.
Under the legislation, mortgage servicers would be protected through 2012 from litigation arising from a loan modification that meets White House standards or from a refinancing under the Hope for Homeowners program.
The banking industry prefers a version passed by the House that would shield servicers from lawsuits connected to a broader set of actions aimed at helping troubled borrowers.