The mortgage servicing companies generally have the authority to modify loans if it is in the best interest of the investors. The government could protect the mortgage companies from being sued by the investors in exchange for extending the teaser rates.
Teaser rates are generally negatively amortizing. If Countrywide and others have agreed to extend the teaser rates, you had better believe that the interest differential is merely deferred.
In order to defer immediate foreclosures, under this plan, cashflows to the investors will be partially deferred and risk of eventual default will increase because the loan-to-value ratio is decreasing, especially if house prices continue to decline.
There is already a bailout plan for insolvent homeowners. It’s called foreclosure. It’s a pretty good deal. You get out of your debt and you don’t even have to go to debtor’s prison.
Is Secretary Paulson trying to keep homedebtors slaves to debt for life, or just until after the election?
I don’t see how this plan addresses the basic issue of insolvency.