Smart Borrower Blog

Top Dem Says Two-Thirds of Lenders Are On Board with Treasury Plan

According to Senate Democrat Charles Schumer Wednesday, two-thirds of the country’s mortgage servicers are willing to cooperate with the terms of the recently-released Treasury Department plans to prevent foreclosures nationwide.

“Two-thirds of servicers are the large banks that are part of the [Troubled Asset Relief Program],” Schumer said. “They’ve already agreed they are going to refinance now that they are no longer worried about getting sued.”

Schumer, a member of the Senate Banking Committee, reportedly got the two-thirds statistic from Housing and Urban Department (HUD) Secretary Shaun Donovan.

The largest mortgage servicers in the country like Bank of America Corp., Citigroup Inc., J.P. Morgan Chase & Co. and Wells Fargo & Co. are rumored to be among those lenders that will participate in voluntarily writing down the value of troubled mortgages, and helping the borrowers to refinance into more affordable loans.

Those are the stipulations of the Obama administration plan laid out by Treasury Secretary Timothy Giethner last week. The plan calls on mortgage servicers to reduce borrowers monthly payments to less than 31 percent of their monthly net income.

The change of heart by many lenders may be attributed to the fact that the federal government will not subsidize these efforts, paying banks and servicers a portion of the money they will lose in the process.

Senator Schumer also stated that pending changes to the bankruptcy laws were also incentive for lenders to start making changes now. The House of Representatives has a bill in the works that would allow bankruptcy judges to force mortgage servicers to write down the value of home loans when the borrowers file for bankruptcy. The judges would also be able to impose new and laxer terms for the remainder of the mortgage.

Most large lenders vigorously oppose this change to the bankruptcy code, fearing that it would encourage more frequent bankruptcy, giving borrowers and easy out,   and rack up millions of dollars of mortgage servicer losses in the long run.