Well, I’d love to oblige you, but I’m still struggling to figure out exactly what loans and what sales of loans Tavakoli is talking about here.

Servicers cannot sell loans out of securities for any reason. You lose your static pool status, your REMIC tax consequences are ugly, etc. Heck, if you could manage a collateral pool by selling off loans, you could surely manage it by modifying loans. But the same rules that disallow mods disallow loan sales.

So she’s either talking about unsecuritized loans–portfolio or “scratch & dent” stuff that the servicer had to buy out of the pool on a warranty issue–or she’s talking about sales of servicing rights, not the loan assets. The former is more likely than the latter, but it’s possible that the PSAs give these servicers the right to unload servicing onto a “combat servicer.” If that’s what they’re doing, they’re taking 3-6 cents on the dollar for MSR, not for the loan balance.

Until I hear more, I suspect that she’s talking about unsecuritized second liens or “scratch & dent” first liens.

I do think one implication of the CFC announcement is that this claim that PSAs don’t allow mods has been seriously overstated. Larry Litton certainly thinks it has, and Litton is an expert “combat servicer.” I still think a lot of servicers just don’t want to be the bearers of bad news to the investors. Whatever other deals are facing, though, I suspect that CFC believes that its PSAs (whether it is servicer or master servicer) allow it to work out loans. So either CFC wrote/executed smarter PSAs than everyone else did–they give it the clear right to work out loans without burdensome seeking of investor approval–or CFC believes that even though its rights are ambiguous it will not face investor backlash, or CFC actually managed to get that investor approval that other servicers claim they can’t get. Possibly all of those things are true at once.

Tanta

You are en fuego, I am enthralled with you tenacity.

Countrywide has plenty of company in the Option Arm space.

Credit Enhancements on this so-called “prime” paper are so much thinner than with subprime that a much lower threshold of defaults is going to trigger rating downgrades. And it will happen quicker as well.