Why did the investment bankers think it was profitable idea to securitize bundle bad mortgage loans?

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First I don’t understand why banks would loan money to someone with bad credit or not having the means to repay. Second I don’t understand why investment companies like Bears Stearns would repurchase the loans from the banks. Securitize them and sell them as bonds. What are they learning at these prestigious business schools? How to be a licensed crook? The credit rating agencies are seem to be payed by not assigning the proper credit ratings. The country is falling apart because people don’t have the discipline to live within there means. Greed is running rampant.

Here’s the story in a nutshell. I purchased a condo in 2005 on an ARM. Just out of a divorce, I decided to consolidate some debt with a home equity line of credit called a 125% loan. Bad move, since I didn’t first refi the ARM. Now, the housing market has slumped, my property value is down, I have negative equity, and I can’t refi. The ARM has gone up and is due to go up again in a couple months. My payment has doubled and I can’t afford it. What will happen if I default on the 1st mortgae but remain current on the second? In other words, what happens to the second mortgage, and how might I be liable even if the payments are current on that loan?

  1. Reply
    January 23, 2011 at 10:15 pm

    The big problem comes in when the people originating the loans are not the people that end up holding the loans. They originator is getting paid to originate loans and frankly doesn’t care if the loans will get paid, because he isn’t going to be holding the loan – it will be sold to someone else. There is no incentive for the originator to do extensive checks to see if the person getting the loan can actually pay it off. All is good and fine if the housing market continues to go up as people can continuously refinance. However, that can’t continue forever and now someone must pay the price for this. That should be the loan originators and the people that applied for these loans.

  2. Reply
    January 23, 2011 at 10:57 pm

    If the first forecloses they drag the 2nd into the foreclosure.

  3. Reply
    January 23, 2011 at 11:23 pm

    Simple. The first morgage will foreclose. It will pay itself off from whatever the foreclosure sale brings in, including paying off its costs in having to foreclose in the first place. If there is any money left over, it will go to pay off the second mortgage. If the money from the sale isn’t sufficient to pay off both, you will wind up owing the rest and getting a really bad credit report. And you condo association might also get involved in foreclosure if you dont pay the assessments. Sorry>

  4. Reply
    January 24, 2011 at 12:14 am

    The first has primary position and will repo or foreclose on the property – the second will only get paid if there money from the sale to do so. The second holder is in a lousy position for colateral but will still come after you. You could go to the holder of the first and try to renegotiate – the alternative is that they will own a house valued lower than what they are owed. They should prefer to have lower steady payments – not a loss.

  5. Reply
    January 24, 2011 at 12:18 am

    Your second mortgage holder has the choice of either protecting it’s position by bringing the first current and pursuing it’s own foreclosure or allowing the first mortgage to foreclose them out and pursuing you for payment on the note up to and including the possibility of suit and judgment.

  6. Reply
    January 24, 2011 at 12:45 am

    newmexico is correct….the second gets dragged into it by the first…this will be out of your control

    good luck…and stay away from ARMs in the future

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