UPDATE: FHFA Chief: Mortgage Servicer Safe Harbor Not Needed
April 15 2009 - 6:45PM
Dow Jones News
The Obama administration's plan to combat the foreclosure crisis
can succeed without shielding mortgage servicers from investor
lawsuits, Federal Housing Finance Agency Director James B. Lockhart
said Wednesday.
Legislation advancing in Congress contains a legal "safe harbor"
through 2012 for mortgage servicers that perform loan modifications
- a measure fiercely opposed by investors in mortgage
securities.
"Obviously the investors don't want [the safe harbor] done, and
so my view is that we can work within the present system and get a
lot of loan modifications done," Lockhart told Dow Jones
Newswires.
Mortgage servicers have cited their fear of investor lawsuits as
the principal reason they haven't modified more loans. Skeptics say
the Obama housing plan, which offers payments to servicers that
perform loan modifications, won't work with the threat of lawsuits
from angry investors.
Large mortgage investors - including hedge funds, insurers and
investment companies - are mobilizing in Washington to fight the
safe harbor legislation. The administration hasn't said whether it
supports legislation to give servicers such legal protection.
"[O]ur program does not rely on safe harbor to be effective in
offering help to as many as 3 [million]-4 million borrowers," a
Treasury official told Dow Jones Newswires.
Lockhart cited "getting investors comfortable with the program"
as one of the top two biggest hurdles facing the Obama housing
plan, along with spreading the word about loan modifications to
strapped borrowers.
He suggested, however, that the blame for the logjam over loan
modifications may rest more with the servicers. Such companies
"have more leeway than they're using at the moment" to modify
loans, Lockhart said he had gathered from conversations with the
bank trustees that oversee pools of securities backed by
mortgages.
Lockhart, whose agency oversees Fannie Mae (FNM) and Freddie Mac
(FRE), wouldn't confirm whether the Fannie Chief Executive Herb
Allison would be leaving the company for a Treasury post overseeing
the government's financial rescue. The Wall Street Journal reported
that Allison had been tapped for the position, but the
administration hasn't made any announcement yet. Lockhart praised
Allison and said, "I would hate to lose him."
Several key positions at Fannie and Freddie have been left open
in recent weeks and months, as the mortgage giants continue to play
a key role propping up the U.S. mortgage market. Freddie CEO David
Moffett resigned last month, adding to openings for chief operating
officer and chief financial officer. At Fannie, the general
counsel, chief risk officer and chief technology officer slots are
open.
Lockhart said he was working to recruit executives for those
positions, and a number of openings at the companies for senior
vice presidents. However, he said the threat that Congress might
cap bonuses at financial firms, including at Fannie and Freddie,
had complicated the effort.
"It's somewhat difficult to hire someone if you can't tell them
what you're going to pay them," he said, adding that the
legislation would be "very detrimental" if it were passed.
There is some surprise that the new administration hasn't moved
yet to replace Lockhart, a Bush appointee. Lockhart said he was
enjoying his job, but indicated a desire to move back to the
private sector "at some point" after several years in government
service. He said he has gotten no indication from the Obama team
that they are close to picking his replacement.
-By Jessica Holzer, Dow Jones Newswires; 202-862-9228;
jessica.holzer@dowjones.com