"It's like buying a bond -- the bondholders don't get to choose the board of directors," he said. "Controlling mortgage-backed securities does not mean you control the terms of the mortgages underlying them. That control is based on lots of factors that are stacked against the government and which are out of the government's control."
Andrew Jakabovics, associate director of the economic mobility program at the Center for American Progress, a liberal-leaning think tank, said that problem could be addressed by the government threatening to remove a favorable tax provision for mortgage-backed security trusts that do not cooperate.
But he stressed that the bailout wouldn't work if Washington didn't address the underlying problem: foreclosures.
"You're trying to bail out a tsunami . . . if you don't get to the source of the problem," Jakabovics said.
The second most frequently mentioned proposal to stop foreclosures, as Jakabovics and others have said, is to allow bankruptcy judges to restructure loans over the objections of lenders -- a practice known as a "cram down."
But changing the bankruptcy laws faces opposition from bankers in addition to skepticism from the Bush administration.
"If a bankruptcy judge can say, 'We're going to cram the price down,' that increases the loss that comes off of that and makes it harder to make new mortgages," said Wayne Abernathy, executive vice president for financial institutions policy at the American Bankers Assn.
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jim.puzzanghera@latimes.com
