Part of what caused the collapse of the housing market was toxic mortgages. As an investment and dividend bearing instrument, a loan lender or financial institution can sell a mortgage they originated to another institution. Sometimes, poor things just happen and mortgages go south. Some financial institution lending options were lent to individuals that shouldn’t have been lent to within the first place. Fannie Mae and Freddie Mac were sold a lot of these lending options. When the lending options went bad, those companies went bad. Financial institutions and security corporations are supposed to purchase these properties back if requested, but some aren’t complying.
Repurchase is mandatory upon demand
Poor loans can damage the businesses that purchase the toxic poor finance lending options. It would seem fair the lending options be bought back. 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 aren’t getting the refunds that are owed.
Sales of poor properties not getting tackled
That said, things aren’t happening that way. A fair portion of the toxic securities are not being purchased back. In fact, according to USA Today, more than $11 billion in defective loans were returned by Fannie and Freddie to the institutions that sold them, only for the bank or loan company to refuse to buy them. Of that $11 billion, lots of it is going nowhere right now. A full third of the loan refunds are 90 days delinquent. The backing for mortgage loans also was provided for by the Federal Housing Administration and the Veterans Administration.
Banks are self defeating by not really repurchasing these assets
The idea is that in the event the pay-backs are granted, the financial institution or loan business that sold the security will lose cash. However, that is actually counterintuitive. Freddie and Fannie are technically in government conservatorship. They are being propped up by tax dollars, which companies and individuals have to pay. That means the longer the mess drags on, the more everyone has to pay, including bank executives and shareholders.
Find more details on this subject
USA Today
usatoday.com/money/economy/housing/2010-09-15-fannie-freddie_N.htm
