(1) Mechanisms for purchasing troubled assets.
(2) Methods for pricing and valuing troubled assets.
(3) Procedures for selecting asset managers.
(4) Criteria for identifying troubled assets for purchase.
What assets are purchased is also central to the ability of the Treasury to stabilize the housing markets. If random tranches of mortgage-backed securities and the securities built upon them (like CMOs, CDOs, SIVs, etc.), are acquired, the Treasury may not have sufficient ownership of mortgage pools to direct the servicers to modify mortgages in default in lieu of foreclosing. Focusing on acquiring enough securities to control a pool will create far greater impact on the housing markets by giving the Secretary the freedom to modify hundreds of thousands of mortgages in default, saving these homeowners from foreclosure and their communities from serious decline.
This leads to the other key provision (and the many related to it):
(a) RESIDENTIAL MORTGAGE LOAN SERVICING STANDARDS.—To the extent that the Secretary acquires mortgages, mortgage backed securities, and other assets secured by residential real estate, including multifamily housing, the Secretary shall implement a plan that seeks to maximize assistance for homeowners and use the authority of the Secretary to encourage the servicers of the underlying mortgages, considering net present value to the taxpayer, to take advantage of the HOPE for Homeowners Program under section 257 of the National Housing Act or other available programs to minimize foreclosures. In addition, the Secretary may use loan guarantees and credit enhancements to facilitate loan modifications to prevent avoidable foreclosures.
This is the plan that can stabilize the housing markets and actually help get the economy back on its feet in the long term. It might also recast the federal role in housing by coordinating the FHA, Ginnie Mae, Fannie Mae, Freddie Mac and the Federal Home Loan Banks to both stabilize housing markets and create a new federal housing finance system that makes ownership and rental housing affordable to working families of all incomes.
John K. McIlwain is chairman of NHC’s research affiliate the Center for Housing Policy, and a senior resident fellow at the Urban Land Institute where he holds the ULI/J. Ronald Terwilliger Chair for Housing. Prior to joining ULI, McIlwain served as senior managing director of the American Communities Fund for Fannie Mae, and was president and CEO of the Fannie Mae Foundation.