UNWINDING THE SECURITIES. A post on March 1 by Judge Posner on the most distinguished of all blogs (the Becker-Posner blog) points out one of the problems presented by the securities based on pools of mortgages: who negotiates a modification of a mortgage on behalf of the lender. Judge Posner supports the passage of “a law that would permit companies servicing mortgages pooled in mortgage-backed securities to modify mortgages in the pool without requiring the consent of all the investors in the pool, even if the security agreement requires unanimous consent by them.” The article in the Economist I posted on yesterday gives an idea of the other problems with modifying individual mortgages, simply by describing the way that “pools of mortgages were bundled up into collateralised-debt obligations (CDOs)”: “Assets were bundled into a pool, securitised, stuffed into a CDO, bits of that plugged into the next CDO and so on and on. Each source of a CDO had interminable pages of its own documentation and conditions, and a typical CDO might receive income from several hundred sources. It was a lawyer’s paradise.” The Economist article focuses on the difficulty of valuing a CDO. But think of the problems of trying to modify a mortgage that has become part of a number of these pools.

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