Interagency Body Comments On Loan Mod Conflicts Of Interest

ink=][u]Federal Financial Institutions Examination Council[/u][/link] (FFIEC), a formal interagency body that counts the Federal Deposit Insurance Corp., the National Credit Union Association, the Office of Thrift Supervision and the Office of the Comptroller of the Currency among its members, has released a statement concerning potential conflicts of interest that arise during the loan modification process. The statement speaks directly about conflicts posed to entities servicing first and subordinate liens on the same property. ‘A servicer's decision to modify the first-lien mortgage should not be influenced by the potential impact of the modification on the subordinate lien loan and vice versa,’ the FFIEC says. The council reminded servicers of their obligation to act in the best interests of the owners/investors of serviced loans, saying "any decisions that are not anticipated to produce a greater recovery to investors given the alternatives may constitute a breach of that duty." The FFIEC states that, regardless of any potential effect on the subordinate-lien obligations, servicers should modify first-lien mortgages when doing so produces a greater anticipated recovery than not modifying. The council further says servicers' obligations are the same in situations where the circumstances are reversed: modify subordinate liens, regardless of the effect on the first, if it's expected to produce a better return than not modifying. SOURCE: [link=]FFIEC


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