I do think that the existing CDO holders want to make the liabilities of the CDO/MBS packages look minimal. To that extent, this interest rate freeze may do that. The problem is that the corner of the rock has been picked up.. looked under.. and man is it ugly. I don’t think this can be so easily painted over. As an investor, I wouldn’t want to be locked into a 7% yielding investment with a 50% chance of losing 20% of my principle on a 5 year span. I would rather take the 20% right now, and find a better place to put the money.
On the other side of the coin, the freeze will tend to hold people within a rapidly devaluing piece of property. If they are not already underwater, they will be in 5 years (unless the Bernanke flush inflates everything else).
What is really important are rules changes for mortgage brokers and real estate agents, establishing their true fiduciary responsibility and with true repercussions on violations.. rules that are much along the lines of Series 3, and Series 7 licenses for stock brokers. A mortgage broker is not required to find you the best mortgage, so they serve themselves and the mortgage companies. They will present the most expensive mortgage they thing you can afford and that you would go for. Same story with the buyers broker and the ‘hidden bid’ trick.
