I don’t think the impact will really be much for the borrower, and even if it is we are looking at 400k out of 2 or 3 million foreclosures – say 15%. I don’t think 15% will help the market much, and I think the new loans all become recourse. If you convert into the new loan, you lose the right to walk away – no longer purchase money – and the government may become the new collector. With prices still falling, the second round of foreclosures may all be recourse.
The big impact will be on the Fannie and Freddie bonds sold to the Chineese and Koreans, and Japaneese et. al.(the lenders) Much of this type of crap is being sold at 20 or 30 cents on the dollar right now, and there is 3 Trillion of it at risk between Freddie and Fannie. And this bill just guaranteed payment to the bond holder.
The great improvement at Lehman where they “sold 6 billion in crap at less than 30 cents on the dollar was not even a real sale. They lent the buyer 5 billion plus of the sale price and must buy it back if the losses are greater than the 1 billion invested by the buyer.
Now we are on the hook for 3 trillion of this toxic waste. No hope for the housing market, nor the US dollar.