By Matthew Goldstein
Don’t be surprised if President Obama includes a line or two in his State of Union address this evening about the need for a plan to allow millions of struggling homeowners whose mortgages are packaged into so-called private label mortgage-backed securities to get a chance to either refinance their loans or restructure them.
The Washington Post is reporting today that mortgage refinancing may be one of the laundry list of items Obama will talk about tonight. And for several months now, investors in private mortgage-securities–deals issued by Wall Street banks and financial firms and not guaranteed by Fannie or Freddie–have been quietly bracing for the Obama administration to move forward with a new refinancing effort.
Up until now, the federal government’s main attempts at trying to help homeowners take advantage of the Federal Reserve’s efforts to keep pushing interest rates to zero has been to prod banks and mortgage servicers to refinance home loans held in so-called agency debt guaranteed by Fannie and Freddie. But programs like HAMP and HARP have provided little relief to the millions of homeowners whose loans are held in private label securities.
In other words, the Fed’s efforts to buy up agency mortgage debt to keep rates low has done little to provide relief to borrowers whose loans are packed in private mortgage securities and they owe more money on their loans than their homes are worth. These borrowers have not been able to take advantage of record low mortgage rates, even as many of the private label bonds their loans are bundled into have soured in value.
As my colleagues Samuel Forgione and Katya Wachtel have pointed out that’s been good news for investors in private mortgage bonds, including hedge funds, especially mortgage funds, but not so much for the actual borrowers.