Last week, Reps. Brad Miller, D-N.C., and Keith Ellison, D-Minn., members of the House Financial Services Committee, introduced legislation that they say will eliminate a conflict of interest that may be preventing large mortgage companies from modifying troubled mortgages voluntarily.
The bill, H.R.4963 – the Mortgage Servicing Conflict of Interest Elimination Act – would prohibit mortgage servicers from owning debt secured by a home that secures a mortgage that they service.
Two-thirds of all distressed mortgages are now serviced by the four largest banks – Bank of America, Wells Fargo, Chase and Citibank, the representatives state. These banks own about $477 billion in second liens.
"Servicers are required to act in the best interests of the investors who own the mortgages," says Miller. "In many, those four banks hold interests in other debt secured by the same home that would be affected by a decision to modify the mortgage or to foreclose, placing the banks' interests in irreconcilable conflict with the interests of investors."
The bill gives servicers time to divest themselves either of any interests in home mortgages, or the authority to service mortgages. The likely outcome would be that the four biggest banks would "spin off" their mortgage servicing business, the representatives say, which would resolve the conflict of interest between servicers and investors and result in smaller, less complex banks.
SOURCE: Office of Rep. Brad Miller