Pay Servicers, Enact Safe Harbor Law to Stop Foreclosures, Columbia Profs Say

There are two primary steps that the feds should take to help end the mortgage foreclosure crisis, Columbia University law and business professors say in a written report (PDF) released yesterday.

First, the government should pay financial institutions to modify mortgages, to give servicers a financial incentive to work with troubled borrowers. Second, Congress should enact a "safe harbor" law protecting lenders who modify mortgage terms from potential litigation by investors who have purchased the loans, reports Reuters.

"We estimate that our plan will prevent nearly one million foreclosures over three years, at a cost of no more than $10.7 billion. It also raises no constitutional concerns, because it builds on well-established Supreme Court case law," the profs write.

The article is authored by Christopher Mayer and Tomasz Piskorski of Columbia Business School and Edward Morrison of Columbia Law School.