Chairmen Frank, Kanjorski, Maloney, Waters, Gutierrez and Watt Demand Hedge Funds Drop Opposition to Foreclosure Prevention

November 12th Financial Services Committee Hearing Announced

Washington, DC - House Financial Services Committee Chairman Barney Frank (D-MA), along with Capital Markets, Insurance and Government Sponsored Enterprises Subcommittee Chairman Paul E. Kanjorski (D-PA), Financial Institutions and Consumer Credit Subcommittee Chairwoman Carolyn Maloney (D-NY), Housing and Community Opportunity Subcommittee Chairwoman Maxine Waters (D-CA), Domestic and International Monetary Policy Trade and Technology Chairman Luis Gutierrez (D-IL), and Oversight and Investigations Subcommittee Chairman Melvin Watt (D-NC), expressed their “outrage” at the report in the New York Times today that at least two hedge funds have warned companies servicing mortgages they should not take advantage of a bill passed by Congress and signed by the President aimed at reducing the rate of foreclosure:

            “What Congress passed overwhelmingly and President Bush signed last July provides for a reasonable modification of mortgages that clearly never should have been granted in the first place to avoid foreclosure and thus lessen the economic damage that a cascade of foreclosures has been doing to our economy.  In drafting this legislation, we consulted with a wide range of consumers, industry, and government regulatory groups, and we believe we adopted a reasonable proposal. Indeed, we have been criticized by some in the consumer community for not doing more to pressure institutions to avoid foreclosure while minimizing their losses.  In light of this, we were outraged to read that two hedge funds, Greenwich Financial Services and Braddock Financial Corporation, are instructing the servicers of their mortgages to defy this national program and to insist on further socially and economically damaging foreclosures. We believe the law clearly allows for modification where such changes would involve a lesser loss than foreclosure, and the benefits to the whole economy of such an approach are obvious.”   

            “For hedge funds, which have been the beneficiary of a lack of regulations and a very permissive attitude, now to put obstacles in the way of this important national policy is intolerable.  We have written to these two hedge funds and to the Managed Funds Association as well, strongly urging them to reverse this policy which will have such negative impacts on the economy.  Because this is so important, and because this irresponsible, antisocial behavior by these hedge funds has such important implications, we have set a hearing of the Financial Services Committee for November 12, and we are inviting these companies as well as the Managed Funds Association to attend.  If we are not able to get voluntary attendance, then we will pursue steps to compel them.

            “Many in the financial community have objected to the argument many of us have made that homeowners should be allowed to invoke the protection of the bankruptcy laws on single family residences, as they are on second and third homes.  The argument in the financial community has been not only that this would be damaging, but that it would not be necessary to achieve the economically desirable result of reduced foreclosures.  But the decision of these two companies actively to oppose our efforts to achieve voluntary compliance quickly undercut that argument, and people in the financial community should not be surprised if this sort of blatant refusal to show any cooperation whatsoever with our efforts leads to an increased demand for much tougher legislation.”

Copies of the Letters:

Braddock Financial Corporation

Greenwich Financial Services


Managed Funds Association