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Article

Government Programs to Refinance (or Modify) Performing Borrowers in Private Label Securitizations: Implications for Investors

Laurie S. Goodman, Lidan Yang, Roger Ashworth and Brian Landy
The Journal of Structured Finance Spring 2013, 19 (1) 39-56; DOI: https://doi.org/10.3905/jsf.2013.19.1.039
Laurie S. Goodman
is a senior managing director at Amherst Securities Group, LP, in New York, NY.
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  • For correspondence: lgoodman@amherst.com
Lidan Yang
is a senior vice president at Amherst Securities Group, LP, in New York, NY.
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  • For correspondence: lyang@amherst.com
Roger Ashworth
is a vice president at Amherst Securities Group, LP, in New York, NY.
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  • For correspondence: rashworth@amherst.com
Brian Landy
is a senior vice president at Amherst Securities Group, LP, in New York, NY.
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  • For correspondence: blandy@amherst.com
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Abstract

With the success of the HARP program for agency borrowers, the authors expect to see a push on the part of the Obama Administration to offer performing borrowers who fall outside of the agency purview a way to lower the payments on their mortgages, either through refinancing or modification. This article examines the various legislative proposals discussed to create a refinance vehicle for these borrowers. It also takes a close look at actions that could be taken by the U.S. Treasury, without legislation, using the HAMP framework to lower the coupons on the mortgages, with some compensation to the lenders/investors. The article explores the impact on private-label security (PLS) investors of the Merkley Refinancing Plan and the Treasury proposal to modify mortgages. Under the refinancing proposals, the loans are removed from the PLS trust; whereas, under the modification proposal, the loans remain in the trust. The cost/benefit methodology for PLS investors is very similar: The benefit of the lower default rate must be weighed against the cost of the forgone coupons on the mortgages that would not have defaulted. The authors find, under plausible assumptions, both programs are modestly net-present-value negative to investors; that can be corrected with some redesign.

  • Copyright © 2013 Amherst® Securities Group, LP. All rights reserved. Not to be reproduced or redistributed without permission.
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The Journal of Structured Finance: 19 (1)
The Journal of Structured Finance
Vol. 19, Issue 1
Spring 2013
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Government Programs to Refinance (or Modify) Performing Borrowers in Private Label Securitizations: Implications for Investors
Laurie S. Goodman, Lidan Yang, Roger Ashworth, Brian Landy
The Journal of Structured Finance Apr 2013, 19 (1) 39-56; DOI: 10.3905/jsf.2013.19.1.039

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Government Programs to Refinance (or Modify) Performing Borrowers in Private Label Securitizations: Implications for Investors
Laurie S. Goodman, Lidan Yang, Roger Ashworth, Brian Landy
The Journal of Structured Finance Apr 2013, 19 (1) 39-56; DOI: 10.3905/jsf.2013.19.1.039
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  • Article
    • Abstract
    • LEGISLATIVE HISTORY
    • THE MERKLEY PLAN
    • COST/BENEFIT TO PRIVATE LABEL INVESTORS
    • THE BENEFIT TO THE GOVERNMENT
    • TREASURY PLAN—USING HAMP TO MODIFY MORTGAGE COUPONS ON >125 LTV LOANS
    • CONCLUSION
    • APPENDIX A
    • APPENDIX B
    • APPENDIX C
    • ENDNOTES
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  • PDF (Subscribers Only)

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