Servicers Remain Under Fire.

Byline: Ted Cornwell

Washington-Congress has just passed legislation to increase refinancing and workout options for troubled borrowers, but some leaders on Capitol Hill think greater relief is needed. And they are pushing additional legislation that will put more pressure on servicers and investors to write down the principal balance of home loans.

Rep. Barney Frank, D., Mass., chairman of the House Financial Services Committee, is urging servicers to hold back on foreclosures in applicable cases so that borrowers can take advantage of an FHA program to help troubled, subprime borrowers with adjustable-rate mortgages refinance into more affordable fixed-rate loans.

The FHA refinancing program included in the landmark housing bill does not go into effect until October 1.

That program allows the FHA to refinance borrowers who are in danger of losing their homes, but in exchange for the FHA guarantee, borrowers must share any profit from the later resale of their home with the government.

Lenders and investors must take significant losses by agreeing to reduce the principal on the refinanced loans.

"I would hope that no one would be foreclosed upon between now and October, first, who would have qualified for this new program. And that is within your power to do. You can show some forbearance," Rep. Frank said at the start of a congressional hearing on loan servicing practices, adding that the hearing on loan servicing practices was among the most important he'd participated in during his 28 years in Congress.