If I understand what people are saying, the Fed, the treasury and the banks are planning to force the investors who own the mortgage backed securities to take lower interest rates. If that’s true then won’t that make it so all investors will be more reluctant to buy mortgages in the future? (Due to the risk that the government might come in and change the terms of your investment at anytime)
Seems to me that any investment that is subject to interference from the government without warning would significantly increase the return premium the investor would demand before making the investment. So ultimately won’t this plan make mortgage backed securities less attractive to investors and thus make mortgages more expensive in the future?
Also, aren’t there legal issues with this plan? Undoubtedly the mortgage backed securities that hold these mortgages have pages and pages of legal docs that define the terms of the mortgages. Unless those docs already grant the power to change the terms to someone, can the government come in and mandate a change without the investors having the right to sue? If I owned a bunch of mortgage backed securities and the government came along and told me, “sorry, we’re going to change those rates, and no you can’t foreclose,” I’d be thinking of calling an attorney. Can the government just come along and change the terms of contracts between private individuals just because the government is worried about a slowing economy?
