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In a largely party-line vote, the House adopted an amendment that would bar the Justice Department from excluding mortgage bond investors from any future settlement talks.
May 9
WASHINGTON – Dissatisfaction is growing in Congress with the Obama administration’s decision to leave mortgage investors out of talks that led to a $25 billion settlement.
After the Republican-led House of Representatives rebuked the administration last week, a bipartisan pair of senators joined the criticism on Monday.
In a letter to Housing and Urban Development Secretary Shaun Donovan, Democratic Sen. Sherrod Brown and Republican Sen. Bob Corker voiced concern about the settlement’s impact on mortgage bond investors, including pension and retirement funds.
“Because any settlement could dramatically affect these funds, their managers should have a seat at the table when solutions are developed,” the two senators wrote. “Furthermore, the officials overseeing the settlement should use all means within their authority to accommodate their needs.”
Corker and Brown also posed a series of questions about the calculations used to determine whether a loan modification under the settlement will be beneficial to the mortgage investors.
The questions address potential conflicts between the owners of first liens, which include many bond investors, and the owners of second liens. The owners of second liens are frequently banks, which sometimes have a conflict of interest because they also serve as the servicer of the first-lien mortgage.
The letter from Corker and Tester followed a House vote Wednesday that would bar the Justice Department from engaging in further mortgage settlement talks without giving bond investors a seat at the negotiating table. That vote occurred largely along party lines.
After the settlement was announced in February, investors in mortgage bonds complained that they were left out of the talks, even though servicers will get credit for write-downs of mortgages that are separately owned by investors.
Defenders of the settlement note that the servicers will only be able to write down investor-owned mortgages when their contractual agreements with the investors give them the discretion to make that decision. In addition, the servicers will get more credit under the settlement for writing down mortgages they own than they will for writing down investor-owned mortgages.
