Released: April 11, 2007

Wall Street makes subprime restructuring tough

Source: Sue Kirchoff, USA Today

As lawmakers and regulators try to help strapped homeowners with “subprime” mortgages stave off foreclosure, they face an unexpected hurdle: Wall Street.

Millions of subprime loans, which are higher-priced loans to borrowers with impaired credit, aren’t held by the initial lenders. Instead, most U.S. mortgages are now put into trusts, repackaged as bonds and sold to market investors.

That can make it more difficult for borrowers to restructure their loans.

In many cases, trust rules bar servicing firms that administer the mortgages from modifying them, according to the Mortgage Bankers Association. In others, servicers can follow standard industry practice, which the group says can spell legal trouble if market investors protest.

Some servicers have modified trust conditions, with the consent of bondholders. But because bonds can be sliced and diced into various offerings, getting consensus can be tough.

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