Conflict of Interests at Mortgage Servicers

This, announced here http://www.nationalmortgagenews.com/premium/archive/?ts=1249574400, is ridiculous:

Feds: Second Lien Should Not Impact Loan Mod Decision

Federal regulators are advising banks that their ownership of a second lien should not influence their decision to modify the first mortgage that they are servicing for other investors. Banks that service the first and second mortgages on the same residential property may face "potential conflicts of interests," the regulators say in a joint statement. "A servicer's decision to modify the first mortgage should not be influenced by the potential impact on the subordinated lien and vice versa," according to the Federal Financial Institutions Examination Council statement.

Oh, really??

It makes me think of bond holders who also bought protection on the same issuer, and stand to benefit much more from the CDS than they would lose on the bond if the company does default. Their incentive to push the firm to bankruptcy is huge, and we would never know since CDS contracts are private, over-the-counter.