Wow is about all we can say, and not about the bailout or the hearings or the investigations - it's the way it's being portrayed.
The hysteria over what is going on in Washington and New York seems to be mounting, and the “news” media has stepped in to keep us all breathlessly flipping channels and surfing sites, listening to talk shows and of course – being saturated with advertising.
And a lot of people seem to believe something major is going to change in their loan situation; they’re not sure what it is, but maybe, just maybe the really ugly mortgage they’re in is going to get fixed or that the perpetrators of this mess are going to be punished.
It’s too early to know what the legislation is or isn’t going to let the Department of the Treasury do, but we believe it’s a safe bet that hiring several thousand people to redo troubled loans and provide great customer service isn’t going to be part of it (this is, after all, the home of the IRS). And we really doubt there is going to be a servicing bureau in the Treasury. They’ll probably see no need to change servicers.
Short view – NOTHING CHANGES on your loan. Long view – if you have a really bad loan in a really bad pool of similar loans and it gets bought by the Treasury, it all depends on what powers the Treasury secretary is given to deal with it and who they sell it to when they’re ready.
But still, you better not count on them negotiating a modification with you. Some sources indicate the way the law is currently proposed would allow the Treasury to cancel existing PSAs and auction the servicing rights to the highest bidder. At least one believes they’ll do what is known as a “cram down” where the principal balance will be forced down to the value of the property and the interest rate will be set to some viable fixed rate. We don’t think they’ll be equipped to do that on an individual loan basis.
The lending industry is fighting hard to keep that power out of the hands of bankruptcy courts, but if the Treasury department owns the loan, there apparently isn’t anything stopping them from doing the loan modifications across the board on a pool.
There may be some good news in the future for a certain number of borrowers, but given the fact that it’s a bureaucracy we don’t hold out a lot of hope.
In the mean time, the Fairy Godmother isn’t coming to help most borrowers.
Craig and Dave