Why can't those who hold mortgage securities take the loss & not banks?

seasideheights · Sep 21, 2008

Banks packaged the loans, sold them to Wall St, who repackaged them over & over & sold them to investors.

Why can't those investors take the hit?

Why are banks on the line considering they passed off the investment to someone else?

Why isn't that "someone else" liable instead of the banks?

seasideheights · Sep 22, 2008

NY0BScalper · Sep 22, 2008

My understanding of it is that many of the mortgages securities the banks created they did not sell, but instead kept on their balance sheets - more specifically, the mortgages too crappy to sell to anyone, they kept so that they could get a high return on their money. Doesn't quite seem to be working out as they planned...

poyayan · Sep 22, 2008

What you are saying here is homeowner cannot walk away from their home. I mean, they still can walk away but they can't shake the mortgage unless they fill bankruptcy.

I don't know why people in US can do that. Most countries don't allow people to shake away their mortgage like that.

If you can't pay the mortgage, the bank will take your home, sold it and chase you for the difference until you pad or fill bankruptcy.

TraderZones · Sep 22, 2008

Quote from poyayan:

What you are saying here is homeowner cannot walk away from their home. I mean, they still can walk away but they can't shake the mortgage unless they fill bankruptcy.

I don't know why people in US can do that. Most countries don't allow people to shake away their mortgage like that.

If you can't pay the mortgage, the bank will take your home, sold it and chase you for the difference until you pad or fill bankruptcy.

that IS how it works in the USA. People who think they can walk away from their home without declaring bankruptcy are sorely mistaken. Banks are ruthless about it. They also have the right to sue the homeowner for ALL their legal costs while pursuing them.

trade8008 · Sep 22, 2008

Quote from TraderZones:

that IS how it works in the USA. People who think they can walk away from their home without declaring bankruptcy are sorely mistaken. Banks are ruthless about it. They also have the right to sue the homeowner for ALL their legal costs while pursuing them.

It depends on whether it's a non-recourse loan or not. Also whether it's an investment property or principal residence.

Angrycat · Sep 23, 2008

Quote from trade8008:

It depends on whether it's a non-recourse loan or not. Also whether it's an investment property or principal residence.

Also, banks won't chase people who are unlikely to have any assets as they will never actually recover anything.

The original poster had a point. While a lot of these trash mortgages were left on the banks' books, many more were sold to foreign governments and foreign banks. Why American taxpayers are bailing out home buyers, banks and foreign banks is beyond me (it's not, but I don't accept the standard answer).

Vinny1 · Sep 23, 2008

Quote from trade8008:

It depends on whether it's a non-recourse loan or not. Also whether it's an investment property or principal residence.

So if it's a non-recourse loan, the bank can't sue you for the difference if they sell the foreclosed house for less than the mortgage amount? In what states are mortgages non-recourse?

What is the difference if it's a principal residence vs. an investment property?