A group of money managers with mortgage bond holdings totaling more than $100 billion have banded together to fight the Obama administration’s effort to aid beleaguered home owners.
The administration expects to modifying mortgages of up to 4 million homeowners. Under the plan, subsidies to lenders would lower payments to 31% of their income.
The investors oppose the plan because it would break debt contracts. They have enlisted Patton Boggs, Washington’s biggest lobbying law firm, to represent their interests, Micah Green, a partner at the firm, told Bloomberg.
The money managers object to legislation the House approved last month protecting companies that collect homeowners’ payments from lawsuits over mortgages that are adjusted, even when the adjustments hurt investors.
“Certainly some greater amount of loans should be restructured,” Bill Frey, chief executive of mortgage bond investor Greenwich Financial Services, tells Bloomberg.
“But it is a fallacy to think that policymakers can selectively abrogate contracts without affecting future investor behavior. We are actively exploring strategies with major investors to protect their rights.”
The money managers argue that the government may actually end up raising mortgage costs for homeowners.
That’s because mortgage lenders and investors would demand higher returns to make up for the fact that loan terms could be changed later down the road.
Obama’s plan has faced criticism from all sides. The banking industry opposes it because bank officials think the plan will make investors reluctant to finance mortgages.
And others criticize the plan because it doesn’t aid many homeowners who are current on their mortgage payments but are underwater, meaning their houses are worth less than their mortgages.
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