Will the U.S. Treasury actually fully own mortgages?

If the U.S. Treasury will actually buy up all of the outstanding "toxic" mortgage backed securities, they would in fact own the mortgages and be able to control them and modify them to help homeowners, but I read in an Associated Press article entitled "Tentative accord reached on bailing out bankers" that "To help struggling homeowners, the plan would require the government to try renegotiating the bad mortgages it acquires with the aim of lowering borrowers' monthly payments so they can keep their homes." Wait... what do they mean by "try" renegotiating? Shouldn't they simply dictate terms? Well, this means that the government might not be the owner of 100% of the MBS for particular mortgages and the remaining MBS that cover those mortgages might balk and not agree to mortgage modifications. That would really suck. What is needed is some sort of eminent domain so that they U.S. Treasury can take over the remaining MBS. If that simply required paying the holdouts "market" value, that would probably be okay if "market" value was roughly the same as the haircut discount that the banks were eating. If I were a holder of such an MBS that I thought was going to bounce back after the crisis, I would want something more, but I think the whole point of buying at a discount is that the general consensus is that housing prices and the rate of foreclosures are not going to bounce back that far unless the mortgages are modified.

If you want to write to your elected representatives complaining about the bailout, please point out that the U.S. Treasury must have the flexibility to modify the terms of all mortgages for any MBS that it acquires under the bailout.

OTOH, there may be some precedent in bankruptcy law where the court is determining what to do with assets and a minority of bondholders are refusing to go along.

At a minimum, the U.S. Treasury and Congress need to be able to publicly post the names of the offending bondholders for all the world to see how shamefully they are behaving.

Somehow, I think this issue can be finessed so that the U.S. Treasury can unilaterally modify mortgage terms, but the bottom line is that a lot of people are going to be very upset if they find out that the U.S. Treasury will not have the authority to effectively dictate the terms of the mortgages for which it is paying such a princely sum.

-- Jack Krupansky