As euphoria over cheap government-sponsored leverage wears off, some investors are beginning to parse through the Treasury’s public-private investment plan, and what they’re finding has been an all-too-common refrain as of late: more questions than answers. While Treasury secretary Timothy Geithner’s toxic asset plan, unveiled Monday morning, provides investors with more detail than previously, it leaves key questions unanswered — particularly on the whole loan side, investors say. “Who services the loans?” asked one investor, who asked to remain anonymous. His firm specializes in whole loan purchases, and he said his firm is uneasy with the terms spelled out by the Treasury’s initial fact sheet. That fact sheet says only that “servicing will be provided by the participant bank, unless otherwise defined,” while suggesting that the investment fund “retains control of servicing.” Read the full legacy loan fact sheet. “If I retain responsibility for servicing, I need to control servicing, meaning the loans I purchase come into my shop,” said the investor, whose fund maintains its own in-house servicing platform. “If servicing stays with the mega-banks likely to be selling this stuff, I’ll have to price accordingly for a lack of control.” Whole loan investors say that the return on their investment into distressed residential real estate loans is wholly dependent on the servicing function–and the fact sheet’s suggestion that servicing would stay with whatever bank sells the loans via auction has investors concerned. “Does this mean I need to junk my servicing platform to participate?” asked another investor, whose fund specializes in acquiring sub- and non-performing mortgages. “My return is dependent on a quick assessment of who can be worked with and who can’t. None of this bulk loan modification [stuff] you’ve been reading about–we either get the borrower on the line and work aggressively to cut principal, or we move as fast as possible into foreclosure.” Beyond servicing on whole loans, a reference to “passive” investors in a frequently-asked-questions document has investors worried as well. The document says that executive compensation restrictions will not apply to “passive private investors” in the whole loan purchase program. “The whole loan business isn’t about passive investment,” said one investor. “Does that mean we’re liable for executive compensation restrictions if we try to control servicing?” Securities investors expressed some disappointment at the Treasury plan’s apparent limitation to only certain RMBS, CMBS, and ABS securities; the Treasury said its ‘legacy securities’ plan will apply to RMBS formerly rated AAA, and CMBS/ABS currently rated AAA. “I dont think you need a lot of leverage to sell AAA rated paper,” said one investor. “Maybe you can get a few basis points more with the leverage, but the problem is still to be addressed.” Investors, banks and other financial institutions have only recently begun seeing some downgrades to AAA-rated residential mortgage credits; the vast majority of downgrades and resulting credit hits have been to other tranches in private-party issuances — and the Treasury plan does not include these securities, ostensibly to protect the U.S. taxpayer. But some investors say that such an exclusion leaves plenty of toxic securities on the balance sheets of banks, and doesn’t explicitly address collateralized debt obligations, or CDOs. Treasury officials are managing a series of private calls with key investment groups this week and next, investors told HousingWire, in an effort to better grasp investor concerns around the plan. Write to Paul Jackson at paul.jackson@housingwire.com.