Lex Luz

Time To Bail Out WaMu?

BigMike - one reason WaMu can't simply modify its loans is that while they may be servicing those loans, the investors in the various MBS were promised income based on a formula that includes the revenue from the loans AFTER they adjust (the formula also includes runoff, some provision for expected default rate, and plenty more). ALL the investors in any given loan (portions of the cash flows of which might sit in more than one MBS) must agree to the modification. This is one of the big challenges for the servicers. So it's really not as simple as just giving the borrower a pass on the reset.