I find it funny that you feel that THIS will have a worse end result than these properties being foreclosed.
First off, the qualifications given here guarantee it’s probably less than about 2% of all mortgage holders that qualify anyway...secondly, even if it prevents half of the homes that would have been foreclosed from being foreclosed, then it’s a win for the banks, not a lose.
I didn't say it would be worse financially. It is worse in terms of moral hazard.
As the details of this plan ooze out, it's apparent that the plan benefits the mortgage service companies, principally, and that it screws mortgage purchasers. You should spend some time reading the details and understanding how the flows work.
The mortgage holders are not the ones making adjustments to the terms. it's the mortgage servicers, whose skin in the game is 0 from a credit extension perspective. Their interests are aligned with keeping the junky (Joe McMansion) paying his mortgage at whatever rate of interest, because the servicer is earning fees for processing. The mortgage holders will likely sue the servicers over this, but it's probably moot: workouts of subprime have been very poorly received by borrowers who wish not to compound the frauds they originally committed in lying on loan docs. So in the end, this appealing plan will have little meaningful effect, other than to serve as an exclamation point to this sad administration.