Part of what caused the collapse of the housing market was toxic mortgages. Mortgages are assets, too; a bank or loan lender can sell a mortgage to another party as a dividend paying instrument. Sometimes, poor things just happen and mortgages go south. Some bank lending options were lent to people that shouldn’t have been lent to within the first place. Some of those loans went down the drain for whatever reason, and since Fannie Mae and Freddie Mac bought a lot of them, so did Fannie and Freddie. Few of these bad loans are being bought back by the banks that sold them.
Buy back is mandatory upon demand
Bad lending options can damage the businesses that purchase the toxic bad finance loans. It would seem fair that the loans be bought back. If loans sold as securities become toxic and are foreclosed on, there is legislation that was passed that guaranteed loans have to be bought back on request. A good deal of these mortgage securities that went poor were bought by Freddie Mac and Fannie Mae. The law is on the side of the two mortgage giants. However, the troubled corporations are not getting the refunds that are owed.
Sale of poor financial debt not becoming tackled
However, the toxic assets are not being repurchased. Freddie and Fannie have been asking for a refund from the businesses that sold the mortgages to them, according to USA Today, and about $11 billion worth is being sold back. Of that $11 billion, lots of it is going nowhere right now. A full 3rd of the loan refunds are 90 days delinquent. The Veterans Administration and the Federal Housing Administration also bought these types of assets.
Banks are being counterproductive by not really buying them back
The idea is that in the event the refunds are granted, the financial institution or loan company that sold the security will lose money. However, that is actually counterintuitive. Fannie and Freddie are being propped up with taxpayer dollars, and businesses also as individuals pay taxes. That means that the longer the mess drags on, the more every person has to pay, including financial institution executives and shareholders.
Further reading
USA Today
usatoday.com/money/economy/housing/2010-09-15-fannie-freddie_N.htm
