Just wanted to post a quick addendum to my piece today about the battle between big commercial banks and investors over the mortgage measure pending in the Senate. One of the provisions I focused on would give banks legal protection from investors when they modify loans. The banks argue that investors could sue over a modification a bank performed on their behalf. They say they need this safe harbor provision so they can modify mortgages at the pace Congress and the administration would like to see.
Investor's hate the safe harbor idea for the same reason--they think it gives the banks too much power to modify mortgages they (the investors) own. They argue that banks already have all the legal cover they need to do legitimate modifications, and that the only reason banks would need safe harbor is to shield themselves from liability stemming from predatory or fraudelent mortgages.
You can decide for yourself how you feel about those claims. (The administration hasn't taken a position; I'm mostly symapthetic to investors on this point, though I can see why risk-averse banks would want protection they didn't technically need.) But, politically, what's interesting is that Chris Dodd is authoring the legislation, which could come to a vote as early as Monday.
Why so interesting? As you probably know, Dodd has real political problems owing to the perception that he's too close to big financial interests. Last June, Portfolio reported that he received cushy terms on two mortgages under the evocatively named "Friends of Angelo" program--part of former Countrywide CEO Angelo Mozilo's effort to court influential politicos. (Dodd has said he didn't seek special treatment and wasn't aware he was getting it.) Then, in March, Dodd admitted he'd added a measure to the stimulus bill that allowed AIG executives to keep their bonuses. (Dodd has said he inserted the measure at Treasury's request.)
My point isn't to indict Dodd for either of these things. (The chain of events surrounding the AIG bonuses is still a little murky to me.) It's just to note that Dodd's already got some real political baggage here. And, if it were me, I'm not sure I'd want to throw the safe harbor provision into the mix, too. It's not hard to imagine investors getting traction with their claim about protecting banks who made fraudulent mortgages (there are certainly more than a handful of investors living in Connecticut...). And there seems to be something about trios that really gets the attention of voters and the media. Why would Dodd tempt fate on this?
Having said all that, who knows? Dodd could be amending the legislation as I write. (I've put in a couple of calls to his staff in recent days but haven't heard back.) We'll see what happens next week.