House Committee Breaks Down Securitizations

Toxic contracts have so far disallowed federal tampering.

By: Larry Dunn

The House Financial Services Committee hearings broke down the structuring of the contracts governing pools of loans held as "securitizations". The contract agreements have so far made it difficult to produce loan modifications or to lower principals that would benefit borrowers and investors.  The majority of mortgages in foreclosure are securitizations and fall under apparent limiting "servicing" by the institution or investor lenders who hold the loans in legal contract for others.

"Loan modifications are expressly disallowed," said Bank of America principal Michael Gross, explaining the nature of some of the contracts.

Financial Services Committee chair, Rep. Barney Frank (D-Mass.) said, "We are getting some progress where the legal authority to modify is clear."

The securitizations packages consist of the "toxic mortgage assets" that a week ago caused a refocusing of U.S. Treasury Secretary Henry M. Paulson's efforts in the subprime crisis. "Foreclosure prevention is something I'm going to keep working on right up until I leave," said Secretary Paulson in the Washington Post article.