The recession began with the real estate market imploding. Part and parcel to that was toxic mortgage properties. As an investment and dividend bearing instrument, a loan lender or financial institution can sell a mortgage they originated to another institution. Some financial institution lending options went to individuals that wouldn’t have qualified with basic scrutiny, and some people’s mortgages went sour because of circumstances. Some of these lending options went down the drain for whatever reason, and since Fannie Mae and Freddie Mac purchased a lot of them, so did Fannie and Freddie. Part of the law governing these transactions mandates that if the purchaser wants to sell the properties back, the vendor has to do agree, but a lot of the sellers are refusing. Post resource – Bad bank loans to F! annie and Freddie not being bought back by Personal Money Store.
If the buyer asks the seller must buy bad loans back
Poor lending options can damage the companies that purchase the toxic bad finance lending options. It would seem fair the loans be repurchased. In fact, laws were passed that guaranteed loans had to be bought back by the seller if the loans in question went bad. These mortgage securities were sold all over the world. Fannie Mae and Freddie Mac purchased a lot of them. The law is on the side of the two mortgage giants. However, the troubled corporations are not getting the refunds that are owed.
Bad assets aren’t being addressed
That said, things are not happening that way. A fair portion of the toxic securities are not being purchased back. You will find more than $11 billion loan bundles, according to USA Today, that are awaiting a buy back. Fannie and Freddie are just sitting there losing cash. Of that $11 billion, a lot of it is going nowhere right now. A full 3rd of the loan refunds are 90 days delinquent. Those aren’t the only corporations that bought those securities. Other lending options were backed by the Federal Housing Administration and the Veterans Administration.
Financial institutions harming themselves
The idea is that in the event the refunds are granted, the bank or loan company that sold the security will lose cash. However, that is really counterintuitive. Fannie and Freddie are technically in government conservatorship. They’re being propped up by tax dollars, which businesses and individuals have to pay. The executives and employees of the financial institutions and other corporations that won’t buy back the properties could have to pay taxes until the financial debt for Fannie and Freddie is paid off.
Find more information on this subject
USA Today
usatoday.com/money/economy/housing/2010-09-15-fannie-freddie_N.htm
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