Enter Mr. Miller’s bill, the Mortgage Servicing Conflict of Interest Elimination Act. It bars servicers of first loans they do not own from holding any other mortgages on the same.
“Unless we can make servicers modify mortgages through bankruptcy or eminent domain, the servicers are not going to reduce principle,”
“Their stance does seem largely driven by accounting concerns — they are trying to maintain the fiction that the mortgages are worth the value they are carrying them at on their books.”
“These mortgages were not designed to increase homeownership; they were designed to trap people in debt and strip the equity in their home…”
In This Play, One Role Is Enough
By GRETCHEN MORGENSON
MEET Brad Miller, a Democratic representative from North Carolina who was elected to Congress in 2002, talks straight and understands how big banks can put consumers at peril.
He is worth getting to know, not only because of his deep concern about the foreclosure epidemic, but also because he has made a compelling recommendation to level an exceedingly tilted playing field in mortgage finance.
Depending upon your perspective, Mr. Miller is either the right man in the right place on Capitol Hill — if you’re a consumer — or a threat to the status quo.
A lawyer who worked on consumer protection issues in North Carolina, Mr. Miller is not new to battling banks. In March 2009, along with Representative William D. Delahunt, a Democrat from Massachusetts, he proposed the creation of an independent consumer agency; it became a part of the recent financial overhaul. This past March, Mr. Miller introduced a bill that would eliminate one of the most pernicious conflicts of interest in banking today: the dueling roles played by the big mortgage servicers.
These companies — the biggest are Bank of America, JPMorgan Chase, Wells Fargo and Citibank — operate as the back office for the mortgage lending industry. In good times, their tasks are fairly simple: they take in monthly mortgage payments and distribute them to whoever owns the loans. In many cases, large institutions like pension funds or mutual funds own the mortgages, and servicers are obligated to act in their interests at all times.
When borrowers are defaulting in droves, as they are now, loan servicing becomes much more complex and laborious. Servicers must chase delinquent borrowers for payments and otherwise manage these uneasy relationships, possibly into foreclosure.
So where does the conflict of interest lie? Often, the same bank that services a primary mortgage owned by another institution also owns a second mortgage or home equity line of credit on the same property. When that borrower has trouble meeting both payments, the servicer has an interest in making sure that amounts owed on the second lien, which it owns, continue to be paid even if the first loan, which it has no interest in, slides into delinquency. About two-thirds of primary mortgages are serviced by banks who do not own them but hold the accompanying seconds.
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