By Assigning Fiduciary Responsibility to Trustees Overseeing Mortgage-Backed Securities, Brown Amendment Would Keep More Americans in their Homes, Reduce Servicing Abuses, and Protect Investors
WASHINGTON, D.C. – April 28, 2014 – (RealEstateRama) — In advance of next week’s markup of legislation to reform the housing finance system, U.S. Sen. Sherrod Brown (D-OH) filed two amendments that would help keep more Americans in their homes and protect investors of mortgage-backed securities by assigning fiduciary responsibility to trustees.
“This is a win-win proposal,” Brown said. “If mortgage servicers and trustees have a stake in preventing defaults, more Americans will stay in their homes rather than face abuses while trying to modify their mortgages or avoid foreclosure. Meanwhile, investors like pension funds will be protected and we can attract more private capital back into the market.”
Under the Johnson-Crapo federal housing finance reform bill, a newly-created Federal Mortgage Insurance Corporation (FMIC) would allow private companies to serve as bond guarantors and insure losses on mortgage-backed securities. Johnson-Crapo creates a Common Securitization Platform (CSP), a cooperatively owned entity to issue FMIC-backed mortgage-backed securities (MBS) to investors. The CSP would charge a fee for usage that is intended to provide equal access for all aggregators, regardless of size.
But the current bill lacks a provision giving a fiduciary responsibility to trustees overseeing mortgage-backed securities. Brown’s amendments would ensure that trustees have a fiduciary responsibility to investors of mortgage-backed securities. This would address the concerns over legal liability for mortgage-backed securities among trustees, servicers, and investors while creating protections that are essential to attracting private capital back into the market.
A summary of Brown’s amendments follows:
#19: Creates a fiduciary duty for trustees of private-label securities issued through the CSP to investors; and #20: Creates a fiduciary duty for trustees of private-label securities issued off of the CSP to investors.
Brown’s amendments are based on provisions in his Foreclosure Fraud and Homeowner Abuse Prevention Act of 2011, legislation that would prevent future servicer fraud and errors, improve foreclosure counseling and prevention, and reform oversight of mortgage-based investing. The bill would expand access to foreclosure prevention services, while increasing protections for homeowners and investors in mortgage-backed securities.