Wall Street, Servicers Search for Ways to Aid Borrowers.

WASHINGTON -- Wall Street investment bankers, lenders and servicers are exploring ways to help distressed borrowers whose loans are in subprime securitizations and are trying to convince Congress that they can get the job done and prevent massive foreclosures.

It is generally acknowledged that restrictions in subprime mortgage-backed securities contracts make loan workouts and restructurings difficult.

However, executives from Lehman Brothers and Bear Stearns & Co. have assured Congress that servicers are modifying loans and taking other loss mitigation steps under existing securitization contracts.

"There are restrictions but I don't think they are insurmountable," Bear Stearns senior managing director Gyan Sinha told a Senate housing subcommittee.

With housing prices "sagging" and defaults and foreclosures rising, he said the MBS investors and trustees would be "shooting themselves in the foot" if they don't respond by restructuring the loans.

Lehman Brothers managing director David Sherr testified that in this environment the interests of the borrower and the investor are very much aligned.

"At the end of the day, the servicer has a tremendous amount of flexibility to do what is in the best interest of that securitization," Mr. Sherr testified.