![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
American's were offered mortgages the could only afford so long as interest rates stayed low. If they had risen, but house prices kept rising it wouldn't be a problem either as the houses could be sold to service the debt.
Banks repackage the mortgage debts and sell them on.
Intrest rates rise. House prices fall. The repackaged mortgages are suddenly a liability, rather than an asset. The banks aren't sure who owns these bad debts, so won't lend money to each other in case it turns out that they don't have the assets to secure the loan against.
Short selling attempts to adjust the value of a bank down, but goes to far.
Here's my question. Why does no-one know who bought those repackaged mortgage debts?
The whole point of this scheme is that the mortgage lenders have been paying interest to the investment banks that own these repackaged debts. So how can banks say they don't know where the debt is?
It was SO easy. Fill out a few online forms, make some choices, and there I was, about to close that loan. But then I did an odd thing. I carefully read the papers I was about to sign (I'm one of THOSE people). And in that residential loan application, right on line something or other, was a number that didn't make any sense to me at all. It was labeled "total household income" and was almost twice the pitiful amount I actually earn.
From where did that number come? It certainly never came from me. Since my signature would be at the bottom of this application I wanted to make sure everything was correct, so I called the mortgage broker. For the first time we spoke. She was a very nice lady, too, and explained that number was the variable required for all the ratios to be correct so I could qualify for the loan.
"But it isn't true," I said.
"Do you want the loan or not?" she asked.
Not.
Banks repackage the mortgage debts and sell them on.
Intrest rates rise. House prices fall. The repackaged mortgages are suddenly a liability, rather than an asset. The banks aren't sure who owns these bad debts, so won't lend money to each other in case it turns out that they don't have the assets to secure the loan against.
Short selling attempts to adjust the value of a bank down, but goes to far.
Here's my question. Why does no-one know who bought those repackaged mortgage debts?
The whole point of this scheme is that the mortgage lenders have been paying interest to the investment banks that own these repackaged debts. So how can banks say they don't know where the debt is?
