The near collapse of real estate has been partially attributed to bad mortgage assets. How mortgage assets work is simple. A bank or loan lender gets someone into a mortgage, and the mortgage is sold as an asset. Some bank loans went to people that wouldn’t have qualified with basic scrutiny, and some people’s mortgages went sour because of circumstances. Freddie Mac and Fannie Mae dropped through the floor when these loans they were sold. Few of these bad loans are being bought back by the banks that sold them.
Refunds have to be issued on bad loans
Bad loans can damage the companies that buy the toxic bad finance loans. It would seem fair that the loans be repurchased. Plus, it’s legally mandated. In fact, legislation has guaranteed loans can be bought back by the seller if the loans become troubled. These mortgage securities were sold all over the world. Fannie Mae and Freddie Mac bought a lot of them. Because both of those companies are seriously in trouble, and the law is on their side, those toxic assets should be getting repurchased.
Sale of bad debt not getting addressed
A fair amount of the bad mortgage assets aren’t getting repurchased. Freddie and Fannie have been asking for a refund from the companies that sold the mortgages to them, according to USA Today, and about $11 billion worth is being sold back. Of that $11 billion, a lot of it is going nowhere right now. A full third of the loan refunds are 90 days delinquent. The Veterans Administration and the Federal Housing Administration also bought these types of assets.
Banks hurting themselves
A bank or loan company that refuses to buy back these loans is only hurting itself. Tax dollars are keeping Freddie and Fannie afloat, and businesses and individuals who work in those businesses pay taxes. The executives and employees of the banks and other companies that won’t repurchase the assets will have to pay taxes until the debt for Fannie and Freddie is paid off.
USA Today: http://www.usatoday.com/money/economy/housing/2010-09-15-fannie-freddie_N.htm
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