Right.
> We aren't buying the pools of mortgages at the bottom of
> MBS securities because we don't need to own them to pay them off?
Right. But also the big goal of Step 1 is to get the banks out of the home mortgage market, because they've screwed it up and it's having a devastating effect on society (see "empty house" syndrome) and likely making the recession worse (see "Am I next?" syndrome). It also is a likely "flight to quality" that would bolster the Super-GSE's balance sheet because a higher percentage of the bad mortgages out there got securitized by non-Agency (read: GSE) actors: so buying mortgages that are still held by banks should indicate more due-dilligence and less fraud.
Once a mortgage gets securitized, the originator is essentially out of the loop, so you might as well wait for it to fall out of a pool during Step 2.
> Now, theoretically, you could say that about non-securitized
> mortgages too -- if we paid them off at payoff value, we
> wouldn't need to own them either. But IIUC, that would be
> overpaying since they are worth less.
The question of "overpaying" doesn't appear in My Plan at all. There's no "paying" at all, really. It's a shift of liability from private to public hands, and there's no re-valuation: the debt gets held at full value. The original "debt" remains at 100%, it's just a question of splitting it into "current" and "deferred" parts. Interest and payments are due on the "current" part, and Someday the deferred part gets settled.
It's kind of like having your Uncle Sam as a silent partner, and he won't sleep on your couch. He's not going to foreclose on the "deferred" part, and he doesn't report quarterly earnings, so it doesn't matter if he has to wait 20 years to get paid. Also: in this environment, he can get financing much more cheaply than you can, so it's probably even positive-carry on that basis (just as it usually is with GSE financing).
> what's the reasoning there? Is it because you accept that there's
> basically there's no way out of the securitization knot -- no way
> securityholders could act like a bank, and authorize their servicer to
> accept lower payoff values as better than defaults?
Yes, people have complained that this would be a big headache, and they are probably right: like pushing a string through a hole in a wall. Dipping into each MBS and trying to unwind it would be a lot of work and couldn't be done all at once. That's why My Plan does the refinancing at the other end of the string: at the homeowner; early payment is a "normal" part of MBS terms.
/jordan