[brewer12345]

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Originally Posted by twaddle Clue us in, brew. Looks like the banks will agree to be the bag holders. Not clear to me this will be a win for the banks. And will this stop underwater home owners from sending the banks some jingle mail? It might slow down the default rate and stretch it out a bit more. Which is better, a long slow death spiral, or a quick painful death?

Nobody really seems to know the details of what is being discussed. I suspect that the treasury is trying to broker a deal between the banks, the servicers of securitized loans, investors in securitizations, and other interested parties so that everyone comes to an agreement about how modifications will be done.

There are plenty of borrowers for whom modifications will not make any difference. These folks are headed for the sheriff's auction. But there are plenty of others who planned to refi before their hybrid ARM reset and cannot do so since the mortgage market is shut down for all but the cleanest borrowers. So a modification that simply extends the existing fixed rate for 3 to 5 years will allow these borrowers to keep up with their payments long enough to pay down the mortgage, sell the house in a non-stressed market, or refinance when the mortgage market unfreezes. Who does this hurt? Not the gummint or taxpayers, since they have nothing to do with it. Those taking the hit will be securitization investors who see prepay speeds grind to a halt and banks who see prepay speeds drop and possibly lower spreads. But they get an offsetting gain by not wrecking the housing market even more badly.

The gummint isn't going to "make up" the interest payments that are foregone. I fnd that to be a bizarre statement.