Who holds mortgage default risk?
In the United Kingdom for instance, 125% mortgages lent at 7 times income for 50 years were packaged and sold – retail – to house-hungry consumers now struggling to make interest-only payments each month. Then the City of London bundled that risk along with yet more subprime debt and sold it again – wholesale – to pension and insurance funds. Double the fun, in other words – plus a high-risk investment for unwitting pension savers, and ‘negative equity’ for the homeowner without house prices needing to drop. Trouble is, the investment banks also kept back a little of these asset-backed insecurities for themselves, too. At Bear Stearns, says CreditSights in New York, MBS junk equals some 13% of the firm’s ‘tangible equity’. Lehman holds 11% of its worth in such bonds. Goldman, Merrills and Morgans won’t say – and they declined to talk to Bloomberg about it this week. But CreditSights reckons their exposure sits in the ‘low- to mid-teens.’ Containing the subprime collapse, in short, migh
Related Questions
- If I purchase a mortgage loan from Landmark can I assume the risk of foreclosure in the event of default, thereby assuming the total benefit from resale of the property?
- If my bank is not the contracting party to the original note and mortgage and merely holds the note and mortgage through assignment, how does that affect my interests?
- What can cause a default and acceleration in a commercial mortgage?
