New Castle Legislation Encouraging Loan Modifications Passes Committee

New legislation has been proposed that would provide a safe harbor for mortgage services who engage in specified mortgage loan modifications.

Many mortgage loan servicers have the opportunity to modify the mortgage rates of borrowers facing foreclosure, but could be discouraged from doing so for fear of lawsuits.

Bill Will Help With Loan Modifications

With the power to modify mortgage rates, it gives lenders more control in fixing the foreclosure problem facing Florida and the rest of the country.

Previously, lenders were afraid to adjust mortgage rates because it meant that the entire loan was being refinanced, and thus left the lender in a position where the entire amount would not be honored and homeowners would simply walk away from their homes.

This regulation will give banks the security to know that they can help homeowners more quickly, and for homeowners, the banks will be able to reduce mortgage rates in addition to just extending the length of mortgages, making loan modifications much more viable solution long-term.

The Loan Modification Bill

This bill expands on Rep. Castle’s loan modification bill, which was included in final passage of the Housing and Economic Recovery Act. H.R. 788 offers safe harbor liability protection to anyone who engages in loan modification regardless of the original service agreements as long as these servicers act in a manner consistent with the Homeowner Emergency Relief Act.

This expansion also requires servicers who engage in modification to report these activities to Treasury. H.R. 788 now awaits consideration by the full House of Representatives.