SDR – I haven’t heard many details regarding servicer/investor interaction but I wouldn’t be surprised to learn that your info is correct. This situation is complicated by the fact that some MBS holders have insured against defaults, and the insurance payout on a default may be a better result for the investor than accepting reduced returns. So the investor may actually be better off with a default as opposed to a mod. In this circumstance, the investor can take the position that a mod goes against their best interests and threaten suit against the servicer if mods are undertaken. I haven’t heard of this happening but I haven’t been in that specific loop recently. I do, however, personally know two hedge funds that insured CDO tranches that they don’t even have on their books (via credit default swaps) and they are screaming bloody murder about potential mods that will wreck their insurance payout. They have a big problem with standing to sue so all they can do is make noise.
There are alot of angles on this mod stuff. It’s nowhere near being played out yet. But if the servicers don’t get moving soon they’re going to be a day late and a couple of trillion dollars short.
