First off, the mortgage rate freeze plan is voluntary. Thus, there will be no contract abrogation. The mortgage issuer probably no longer owns the mortgage, as it has been tossed into a CDO and sold off in tranches. For example, a Countrywide mortgage that Fred in Boston got may be residing in a CDO issued by an investment bank with his tranche owned by a US pension fund or a Scottish bank, or whoever. Thus, the owner of that tranche needs to ok any rate change.
Also the plan only applies to a small subset of those with mortgage problems, about 7% or so. So, it’s difficult to see how this will help many people.
My take: It’s for political show. The government needs to be seen as doing something.
Tanta at Calculated Risk has an exhaustive analysis, concluding with –
The authors of this plan believe it is liability-proof (that it basically meets the requirements of the existing PSAs, with the caveat that it isn’t a legally binding mandate on all servicers and securities, so a deal with a very restrictive PSA that this isn’t compatible with can just opt out.
Is it all kind of anemic after all the build-up? Yep. Does it mean contracts are now invalidated in the U.S.? Not as far as I can see; in fact, I’d say the contracts were the part of this that got the most thorough protection. In my reading of this, giving a deal to a borrower almost seems incidental.