A New Hope - Help Us, Hank!

Tanta over at Calculated Risk has analyzed the "Hope Now" Plan and has put her eminent expertise to fine use. Her initial thoughts after reviewing the details, which should surprise exactly no one, are that the objective here is primarily to salvage as many mortgage-backed securities as possible.

She observes that the rather specific partitioning of troubled borrowers is the key to understanding what's going on. The people who are already screwed...well, they remain screwed. The people who can qualify for a refinance...let 'em eat refi.

It's the people who are currently paid in full but are likely to begin defaulting when their rates reset that get the help. Why this group? Because, if we allow them to keep paying at a current or modified rate, it keeps the cash flow moving into the mortgage backed security. Thus, the MBS does not deliver the originally-expected returns that were expected, but it's better than what would occur if masses of otherwise liquid mortgagees were forced into foreclosure.

The primary action which drives this plan is a clarification of some tax and accounting rules which were previously unclear, and might have prohibited loan modifications. With this clarification, the parties owning the loans are now free to preserve their coupon payments, and hopefully stanch some of the bleeding from their portfolios.

So, in case you were wondering what may have motivated this particular action, rest securely in the knowledge that BushCo is passively working to preserve the solvency of capital markets. Holders of MBS, sleep soundly tonight, secure in the knowledge that "Hope is on the way!!"