I don’t see how this will help the liquidity problem, it’s new rims with old tires. Why would any investor in the future buy mortgage backed securities if they are going to get strongarmed out of their profit, more risk, no reward. Within those pooled assets are a chunk of borrowers who will continue to make the payments at higher rates to offset a little of what the foreclosures cost them. Based on the critera, 660 fico, no lates, equity, they are being told to not make any money off of the best borrowers in the pool while those who don’t qualify are really the ones who will be foreclosing.
Almost every attempt in history to trick the invisible hand of economics has backfired, this will be no different. Where did Laize faire go? This is akin to a casino changing the rules in blackjack after I’ve bet and the cards have been dealt, telling me that I lose on a tie. They will do nothing other than ensuring I stop betting because they can’t be trusted. They may save a few people but they will make sure that private equity steers clear of anyone without stellar credit and large downpayments, while that is not a bad thing, it will hurt the very market they are trying to manipulate.
