Thursday, February 15, 2007

This is Classic
The big banks that bought packaged subprime loans are now putting them back to the mortgage companies that originated the loans. As a condition to buying the loans, banks had the option to sell back ("put") the loans to the originator if the loans defaulted. This puts the risk on the seller not the buyer.

The mortgage companies must not have read that paragraph in sales contract. They would have been prudent not frivolous in making the "no income verification" loans to people with low credit scores if they expected to ever see the loans again. One company, ResMae Mortgage Company, had to declare bankruptcy this week when it had to buy back $308 million of crap mortgages it sold.

Not to get political (this is being a realist) but the finance companies were big promoters of the bankruptcy law that was passed two years ago. I hope the bankruptcy court is tough on these companies because ResMae is not going to be the only one going under. These companies had retarded lending practices and their stupidity was confirmed by their acceptance of the put option on the garbage loans they originated and sold. The court should have no mercy.

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