From Caroline Baum at Bloomberg:
"We learned last week that Treasury Secretary Hank Paulson was working with the mortgage industry and major financial institutions to craft a plan to freeze introductory teaser rates on certain subprime mortgages that are due to reset higher, as specified by the original terms of the loan.
. . .
According to the broad outlines of the plan, the Treasury will divide subprime borrowers into four groups.
. . .
Group 4 includes those who can continue to make their mortgage payments if the teaser rate stays in effect or the maturity of the loan is extended. For this category, and this category alone, help is on the way.
How do you spell b-u-r-e-a-u-c-r-a-t-i-c n-i-g-h-t-m-a-r-e? If fraud was widespread during the housing bubble, the current plan has its own set of incentives.
``People will come up with eight ways of rearranging their finances to stay in Group 4,'' said Ram Bhagavatula, managing director at Combinatorics Capital LLC, a New York hedge fund.
More to the point, ``this policy solution smells of the tenets of Marxism: from each according to his ability to each according to his need,'' he said.
. . .
If you think getting mortgage servicers and investers to agree on an outcome is tough, just wait until the lawyers get involved.
``The modification of existing contracts, without the full and willing agreement of all parties to these contracts, risks significant erosion of 200 years of contract law,'' said Joshua Rosner, managing director at Graham-Fisher & Co., an independent research firm in New York."