Monday, May 28, 2007

Flexibility To Restructure Subprime Mortgages Lacking In Most Cases

The Associated Press reports:
  • "Federal banking regulators are giving lenders more flexibility when they restructure high-interest rate mortgages given to home buyers with poor credit. The effort by the Office of Thrift Supervision and other agencies is aimed at softening the impact of the housing market’s slowdown and bolsters the argument of lawmakers who say mortgage reforms may not be needed."

Reportedly, the efforts of federal regulators are limited, however, by the fact that "lenders independent of federal authority originated more than 50 percent of subprime loans in recent years. Those loans were then often bundled into securities and sold to institutional investors."

In addition, regarding the difficulty in restructuring home mortgages that have been packaged into securities and sold off to institutional investors, Reuters reports:

  • "Little can be done to change the terms of subprime mortgages to prevent foreclosure because of the way loans that were packaged and sold to Wall Street investors, mortgage industry executives said Monday."

Reportedly, the complexities involved in the financing structures that slice up and package different parts of the mortgage loans into bonds sold to investors, make it extremely difficult to restructure the troubled mortgages. Other complications that make restructuring difficult involve income tax issues, REMIC issues, and financial accounting issues.

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