Lehman Brothers is making a lot of noise about its new U.K. RMBS loan modification program through which the firm aims to protect its nonconforming RMBS transactions. The loan modification process consists of a number of potential alternative strategies such as payment deferrals and the extension of maturity dates, among others.

Since 2003, the bank has invested heavily to combine the servicing operations of its U.K. mortgage lenders, Southern Pacific Mortgage (SPML) and Preferred Mortgages (PML), into Capstone Mortgage Services (Capstone), its wholly owned mortgage servicer. Lehman bankers said that the modification program has been in the works over the past five to six months. "We have a reasonable degree of payment shock and lots of our customers won't have refinancing opportunities, so we want to get them to a point where they are re-performing on the loans," a source at the bank said.

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