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Sucks the person who owes the debt cant get first bite at buying the firesale debt.
by namelessoracle 4y ago
Sucks the person who owes the debt cant get first bite at buying the firesale debt.
- BostonEnginerd 4y agoWhy can't they?
- parkingrift 4y agoThey don't and won't sell individual loans. They package them up so they can throw in all the junk loans.
- amelius 4y agoI suppose they want to sell to the highest bidder anyway.
- randomdata 4y agoThe mortgagor likely is the highest bidder. They have the least amount of risk seeing as how it is their own debt, allowing them to pay more than others, and still brings free money when purchased at a discount. Labour intensive, though. Packaging up many loans and selling it as a complete unit is far easier.
- deleted 4y ago[deleted]
- mupuff1234 4y agoWhy would they?
- tylersmith 4y agoIf they can't service their debt then they can't afford to buy the rest of it outright, even at a discount.
- scottyah 4y agoLots of people can pay off their mortgage but choose not to. If given a good enough discount it would make financial sense to do so.
- namelessoracle 4y agoOk, but what if you can service your debt? What if they are selling your 300k mortgage for effectively 50 to 100k? You could find financing for 50 to 100k, especially if you have a 300k house as collateral as part of it. Only the other bank gets the sweetheart deal. Same kind of problem with foreclosure auctions too btw. They require cash up front for those, you cant put a mortgage on a foreclosed house. (without it first being bought outright by the bank, who isnt gonna mortgage it to you for the foreclosed price)
- rayiner 4y agoThey’re not selling individual mortgages for 300k usually. The buyer is buying a tranche and the risk that many of them won’t repay.
- mamonster 4y agoJust because someone is selling 10 homes with a nominal mortgage value of 3 million total for 500k to a million does not mean that you can bid 50k on a single home from that pack. This stuff is always packaged and you need to buy the whole thing, maybe dig through it, pick out stuff you like, repackage the rest and sell it off. The troubled mortgage lender likely isn't even selling good loans initially, they will first try to recapitalize by dropping the garbage, and will only sell quality assets when they are really pressed to do so.
- onlyrealcuzzo 4y ago90%+ of mortgage owners do not have enough cash. Further, in most times MBSes are usually worth more than the debt - otherwise, modern banking wouldn't make any sense. Mortgages issued in the last 2 years at ~2.75% are probably worth less than the debt now. So it might actually be the case for a lot of these loans. That being said, the discount is not going to be anywhere close to 50%. The difference in the discount would be evened out by the difference in the interest rate you'd have to refinance at almost exactly. Considering the cost of refinancing, if you bought your own debt with some new debt from some new mortgage company - this would be a losing proposition for 99%+ of mortgages.
- hedora 4y agoI agree, but I see why they don’t want to skim the mortgages that could be paid off in a lump sum off the top of their bucket of dodgy loans. I’d love to see the law change to force owners of debt to give the person that owes right of first refusal whenever debt is sold. (Mostly for medical debt and collections agency situations, but also for mortgages.)
- lotsofpulp 4y agoThat makes no sense. A borrower would have incentive to default on the debt, so they can then purchase it at less than face value, effectively causing them to experience a gain and the lender to experience a loss. Why would anyone choose to lend under such terms?
- Volundr 4y agoThis could easily be addressed by simply not offering the option to someone in default, but even without doing that, I don't think your assertion makes sense. Not paying my mortgage on the idea that my bank will go brankrupt before they are able to reposses my house is a HUGE gamble. I doubt my monthly payment has any meaningful impact on my banks bottom line.
- lotsofpulp 4y agoIf I understood correctly, the proposition was to give borrowers the first right of refusal when a lender sells the debt, which can and does happen all the time without a lender going bankrupt.
- namelessoracle 4y agoSure, but the "value" of the mortgage is supposed to be that it represents twice (usually way more) of value in interest payments that the Debtor will pay over the life time. So why is the bank selling it for sometimes half of what the Debtor owes then on a fire sale scenario where the holder is having issues? One of the big problems that happens a lot with mortgages is that the bank sells it to this other bank and mix ups can cause all kind of problems for the debt holder. Give the debtor right of first refusal at price they are about to sell (simple form letter that they have 30 days to respond to). 9 times out of 10, debtor just lets it happen. But what WILL happen is a company will come along, offer what are basically refinance loans to service this situation, and the debtor gets helped out. The whole practice of tranching is toxic to begin with and if this discourages that its a double win.
- ortusdux 4y agoThat precedent could perversely incentivize people to seek out unstable lenders.
- DwnVoteHoneyPot 4y agowhich may help them become less unstable.
- marricks 4y agoI wonder why survival of the fittest has to always hurt the little guy. Buyers seeking out unstable lenders seems like a good way to encourage more stable lenders.
- deleted 4y ago[deleted]
- ALittleLight 4y agoWouldn't buyers seeking out unstable lenders discourage stable lenders? Because buyers would prefer their competitors?
- marricks 4y agoIf the unstable lenders folded and the mortgage holders could buy out their loans on the cheap, no? Then the shareholders of the lending company wouldn't be rich-people-broke-where-someone-buys-them-out-and-somehow-they're-all-still-rich they'd be actual-broke-where-they-lost-all-their-money-on-a-stupid-venture.
- kipchak 4y agoMatthew effect perhaps?
- _jal 4y agoWhen businesses abuse incentives and tip systemic risk into systemic crash, well, that's just the way the world works. When individual borrowers may have a transient opportunity to play games, suddenly folks are hot and bothered about moral hazard. I'd also note you could flip that argument on its head - more people seeking out unstable lenders would help capitalize them.
- __derek__ 4y agoThey already won: their mortgage requires a big haircut to sell off because their rate is so far below market.
- dylan604 4y agoThe person holding the debt of that mortgage does not win. The new bank coming in and buying the mortgage assets of the defaulting bank wins. The person holding the mortgage probably never even knows the difference.
- __derek__ 4y agoIt was a joke. Who owns the mortgage is irrelevant to the borrower, but the borrower gets to keep the below-market rate while the originator has to take a haircut on the deal. That's the sense in which they won.
- CoastalCoder 4y agoI don't think that's correct. IIUC, the lender who sells the debt takes a loss, but the amount of debt owed by the borrower remains the same.
- __derek__ 4y agoI was being cheeky. The people who took out these mortgages are paying a rate well below market-rate. They won in the sense that they're paying less to service the debt than the lender is paying to carry the mortgage.
- bdcravens 4y agoLoans aren't sold one-by-one; they are sold in bulk. If so the discount would be substantially less.
- sillystuff 4y agoThese debts are sold in bulk so you would need to buy a bunch of other debt too. But, there is a group that is buying up blocks of discounted bad debts and forgiving them. They call their program the "Rolling Jubiliee". https://debtcollective.org/what-we-do/debt-abolition/ https://debtcollective.org/what-we-do/debt-abolition/
- shaburn 4y agomorale hazard econ 101 should really be required for HN posting