Rep. Keith Ellison, along with Rep. Brad Miller, D-N.C., introduced legislation last week that would fix a problem in mortgage lending. The bill would eliminate conflicts of interest among large banks that prevent them from modifying troubled mortgages. The bill would prohibit a bank that owns a mortgage from owning a second mortgage on the home — a form of investment — which prevents that bank from modifying the original mortgage.
Miller said that most mortgages are owned by four banks: Bank of America, Wells Fargo, Chase and Citibank. “Servicers are required to act in the best interests of the investors who own the mortgages. In many, those four banks hold interests in other debt secured by the same home that would be affected by a decision to modify the mortgage or to foreclose, placing the banks’ interests in irreconcilable conflict with the interests of investors,” he said in a statement.
“The obvious conflict of interest between the investors and servicers may well be a factor in the failure of servicers to modify mortgages voluntarily,” said Ellison.
The Mortgage Servicing Conflict of Interest Elimination Act would give banks time to divest from the investments in home loans and allow them to make decisions on mortgages without running into conflicts of interest with the hope that more homeowners would be able to modify their mortgages and avoid losing their homes.