Contract law & mortgage back securities complicate more than you think

From NYTimes article:

The case against Countrywide is being closely watched by pension funds, insurance companies and other investors in mortgage securities who contend that loan servicing companies that agree to change the terms of mortgages are breaching contractual obligations to owners of those loans.

Investors who own mortgage securities receive interest and principal payments from borrowers over the life of the loans. When servicing companies modify those loans, investor payments are typically reduced.

“I view this as an opening salvo and a demonstration that investors do have contractual rights, even when it is politically unpopular,” said William A. Frey, one of the investors who brought the lawsuit. “This is ultimately going to be one of many legal battles over who should pay the hundreds of billions of dollars in losses on mortgages.”

In other words, the derivative called a mortgage back security[MBS], which is bundled mortgages, has complicated any home owner assistance programs, balance sheets of banks & other holders of the MBS.

It can certainly be argued this will be a large factor in complicating & delaying any recovery in the "real" economy.