A REASON WHY “DUD MORTGAGES” WERE NOT CLEANED UP ONE MORTGAGE AT A TIME.

A REASON WHY “DUD MORTGAGES” WERE NOT CLEANED UP ONE MORTGAGE AT A TIME. I posted in early 2009 that “[banking] problems can be finally resolved until the snarl of complicated mortgages and toxic securities is unwound. The assets will have to be located and traced, probably one mortgage at a time.” I posted several times thereafter about how little progress was being made on the cleanup. The Economist in this article offers an explanation as to why this happened: “The traditional playbook called for the government to buy and then write down the bad loans, cleansing the banking system and enabling it to lend again. But when the Treasury studied such proposals, it found there was no ready mechanism to extract dud loans from securitised pools.” The lesson for the future is to bear in mind just how dangerous the securitized mortgages were.

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One Response to A REASON WHY “DUD MORTGAGES” WERE NOT CLEANED UP ONE MORTGAGE AT A TIME.

  1. Henry Nejako says:

    I do not understand why banks don’t raid underwater mortgages. It would seem to me that Burke & Herbert Bank & Trust Company, for example, would benefit if it found a borrower whose property value had fallen below the resale value of the house but who had made the monthly payments on time and had steady employment and reasonable prospects for maintaining it. Burke & Herbet could persuade the borrow to take on a new loan, a combination of a mortgage based on current resale value and the remainder an unsecured loan. With enough due diligence and enough of these bailout mortgages, Burke & Herbert could have plenty of profitable mortgages and the new borrowers could have lower monthly payments.

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