State and federal regulators are urging companies servicing mortgages that have been securitized and sold to investors to "determine the full extent of their authority" to employ loss-mitigation strategies to avoid unnecessary foreclosures. Mortgage loans -- especially those offered to subprime borrowers with blemished credit -- are held for investors in securitization trusts. The servicing of loans that have been securitized is governed by contracts called pooling and servicing agreements. The agreements spell out when and how often loan servicers can work out loan modifications with troubled borrowers, instead of taking possession of the properties that serve as collateral for the loans. Some critics say the agreements can prevent loan servicers from engaging in workouts with troubled bo...
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