WASHINGTON – Sen. Sherrod Brown is urging government negotiators to force banks to pay for a potential mortgage servicing settlement out of their own pockets, rather than by writing down the value of mortgage-backed securities owned by investors.
The Ohio Democrat aired his views Thursday in a letter to federal and state officials who are involved in settlement discussions with the nation's largest mortgage servicers. The letter follows a Jan. 6 story in the Financial Times that cited anonymous sources who said that mortgage bond investors may be forced to take losses as part of a settlement deal.
"The penalty for bank servicer misconduct must come from the bank's balance sheets, not other sources of mortgage capital," Brown wrote. "The reported settlement terms would allow banks to write down the investments of many of my constituents, without sacrificing anything."
The settlement talks involve allegations of robo-signing and other misconduct by servicers. Shaun Donovan, secretary of the Department of Housing and Urban Development, said that about one million homeowners would get principal reductions under the proposed settlement terms.