On top of the legal risks, reworking loans can be costly for master servicers. They need to document what new monthly payment a homeowner can afford and assess fluctuating property values to determine whether foreclosing would yield more or less than reworking. It’s costly just to track down the distressed homeowners, who are understandably inclined to ignore calls from master servicers that they sense may be all too eager to foreclose."
To solve this problem
move the reworking function from the paralyzed master servicers
and transfers it to community-based, government-appointed trustees.
These trustees would be given no information about which securities
are derived from which mortgages, or how those securities would be
affected by the reworking and foreclosure decisions they make.
Instead of worrying about which securities might be harmed, the blind trustees would consider, loan by loan, whether a reworking would bring in more money than a foreclosure... The trustees would be hired from the ranks of community bankers, and thus have the expertise the judiciary lacks...
Our plan does not require that the loans be reassembled from the securities in which they are now divided, nor does it require the buying up of any loans or securities. It does require the transfer of the servicers’ duty to rework loans to government trustees. It requires that restrictions in some servicing contracts, like those on how many loans can be reworked in each pool, be eliminated when the duty to rework is transferred to the trustees... Once the trustees have examined the loans — leaving some unchanged, reworking others and recommending foreclosure on the rest — they would pass those decisions to the government clearing house for transmittal back to the appropriate servicers... "
