4 ms·
It seems to me that a modification to the interest rate or amount owed should not be allowed when the debt is owned by a third party - at least without that thi
by Zak 16y ago
It seems to me that a modification to the interest rate or amount owed should not be allowed when the debt is owned by a third party - at least without that third party's consent. When a bunch of loans are rolled up in to a security, it's not practical to get the consent of all the shareholders.
- gchpaco 16y agoAnd then the homeowners will declare bankruptcy and the third parties get nothing instead of possibly something. The risk of this happening is supposed to be encoded in the risk rating of the loan, but that didn't happen in a very useful fashion.
- jrockway 16y agoit's not practical to get the consent of all the shareholders Well, you get that when they buy the security. "By signing, you agree to accept..." Except unlike for DVDs, this sort of thing is actually legally binding. Part of the whole subprime crisis was that nobody actually read these things, and they were caught by surprise when conditions changed. ("If 3 people default on their loans, your 50 billion investment is worthless." That's kind of bad when it's your own money, but really bad when you borrowed those 50 billion from someone else. Hence, a recession.)