I’m sure this doesn’t work for every distress case however, assuming the original mortgage has been sold by Countrywide to Wall Street and it’s resident is some MBS somewhere then really Countrywide isn’t losing any money directly on the bad mortgage (sorry hedge funds) but they are stuck with a servicing obligation which is a bit of a problem and this could be a way out of a fraction of bad deals. They also would make some level of profit on the workout loan. All that said these loans would almost assuredly have to be held in the portfolio so there is a limit to how much you could do this.
Interesting situation but as noted it’s rumor. The market will come up with ways to try and manage its way out of this situation.
Net net my guess is less than 5% of the foreclosures fit this model. Anything investor owned is going to to the REO route.
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