We’re probably not going to see any new law, per se, regarding mortgages this year, but lawmakers and government agencies are certainly all over the emerging re-cast crisis. Barney Frank and his crew are aggressively pursuing clarification of FAS 140, for instance, which may very well result in an interpretation very favorable to borrowers and servicers. If loan servicers can modify loans without any negative impact on their in-house accounting, the rise in modifications may dwarf the rise in NODs/foreclosures. Moody’s latest analysis of pooling/servicing agreements indicates that 95% of subprime paper can be modified by the servicer, so now it’s just a matter of impact on servicer accounting that is standing in the way of mass modifications.

Technically, no new laws/reform are really needed. Borrower/servicer-friendly interpretations of existing standards will probably be enough to ease the crisis. And I said ease, not eradicate.