Industry News

SEC blesses workouts on securitized loans

Lenders won't have to put loans back on balance sheets

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The Securities and Exchange Commission says lenders don't have to put mortgage loans they hold through securitization trusts back on their balance sheets if the trusts that service the loans engage in workouts with troubled borrowers. The SEC's opinion -- on an accounting rule that governs the terms under which lenders can move loans off their books, allowing them to make still more loans -- may help some borrowers avoid foreclosure. But it could also allow lenders to put off acknowledging the losses they may eventually realize on such loans. The SEC opinion came in the form of a letter to Rep. Barney Frank, D-Mass., who was concerned that the accounting rule might prevent lenders from engaging in workouts with borrowers facing foreclosure until after their loans went into default. Lenders sometimes agree to modify the loan terms of borrowers who are having trouble making their mortgage payments by reducing interest rates, extending loan terms or granting other concessions in the hopes...