I’m not yet convinced that investors will swallow this pill…if I’m an owner of one of the securitized pools, I’m doing the math of how much more interest I get from keeping people in their homes who would have otherwise defaulted versus how much I lose by giving breaks to people who might have made it anyway…there’s no effective way to segment with such big incentives for the borrowers to game the system.
I can see the people in the riskiest tranches being a little more eager to go along because they are first on the hook for losses, but people further up the credit quality spectrum are going to have big problems…that means the benefits will be reaped by a narrow few, while the losses are likely to be borne by the many.
This aside, though, I don’t think it will make a lot of difference. Subprime foreclosures are a driver, but not the main one-you still have issues in prime, job losses from impending recession, and big affordability issues…this is a political stunt-it may have some positive impact on a small segment of borrowers, but it won’t slow the depreciation appreciably:)
