And just to clarify again, the loans affected will not be all ARMS, just the payment option arms, such as the interest only loans, helocs, etc. These are recent and controversial instruments. I think the credit card analogy is best. Those regulations were put into place because the minimum payments reguired of borrowers were so low that the payoff of the balance would take an unreasonable amount of time. They increased the minimum payment required on all existing credit card debt. My feeeling is that the resetting of the payment option arms will be similar–requiring a greater minimum payment for carrying these loans.
Originators of loans almost never actually service the loans. Most originators have a line of credit from a major warehouse lender. Originators then pool the loans they originate and sell them according to the loans particulars, Fannie, Freddie, FHA, prime, subprime. Those loans are then contracted out to a servicer or subservicer who collects the payments and works with borrowers for a standard fee, while at the same time these loans (assets)are packaged up according to risk and sold as MBS securities.
So companies end up servicing loans of other major campanies, depending on their expertise. There is a lot of outsourcing of subservicing rights. The whole industry is very mutually dependent. Additionally every state has different laws and timelines regarding foreclosure procedures, judicial, non-judicial, number of days, original documents,etc. The industry is much more complicated than what most individuals experience of qualifying for a loan, and then making monthly payments. Your paper passes through many, many hands, belonging to many different companies, used for many different purposes. Thus, hypothesizing that the guidelines will only affect a small portion of the companies, and would be voluntary may be a bit naive.
