November 01, 2008
Mortgage Relief as Details Regulation
Posted by David Zaring

The FDIC has taken over IndyMac and its 400,000 distressed mortgages, and is unilaterally extending and easing them for homeowners.  JPMorgan has announced that it will do something similar with the WaMu mortgages it has taken over.

Is this all that's required to give homeowners relief?  The feds ease mortgages for banks they seize and get the big lenders to promise to do the same for the ones they buy?  Unlikely, I think.  That plan - essentially the oft-criticized HopeNow program plus government-forced-workouts inside the so far small number of failed banks - seems a little too easy.  And that is too bad, the advantages of mortgage relief at the bank by bank level are many - no second bailout statute, no taxpayer dollars, no cumbersome administrative process, no turf fights about when and who and how.

One problem in easing up mortgage terms this way lies in securitization.  The FDIC can do whatever it wants with the IndyMac owned mortgages, and has gotten whole owners of the mortgages IndyMac manages to play ball ... but how do you get sign offs on a refinancing of a mortgage owned by many institutions?

The third category, securitized pools, can be even more complicated because, often, dozens of investors own portions of the pool. Revisions to the contracts that establish what kinds of changes can be made to mortgages must be approved by all the investors. Sometimes those contracts can forbid modification of more than a small portion of the loans in the pool.

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