The Association of Mortgage Investors (AMI) is calling for the use of "specialty servicers" to modify and write down delinquent single-family loans, second mortgages, and other consumer debt.

The trade group, which represents investors in private-label MBS, believes regular servicers have numerous conflicts of interest due to their ownership in second liens, credit card, and auto loans. Because banks carry these other consumer loans on their books, it makes them reluctant to participate in the modification/restructuring process of first mortgages, AMI argues.

"We recommend the use of special servicers which offer enhanced counseling and operational capacity to help consumers find a 'right-sized' modification," AMI said.

The trade group supports principal reductions of first and second mortgages where the combined loan-to-value ratio can be reduced to 115% and the borrower can refinance under a new Federal Housing Administration 'Short Refinance' program.

AMI is making its recommendations to a state attorneys general working group that is negotiating with major servicers on implementing new foreclosure and loan modification standards.

"Mortgage investors believe the only way to truly put distressed borrowers on a sustainable path forward is by including the borrower's entire debt load in the modification or workout program," AMI executive director Chris Katopis said.

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