I think it's worse than slightly more toxic, it would be virtually unsellable. People with decent credit will simply get a new loan for 70% of their principal;

I think it's worse than slightly more toxic, it would be virtually unsellable. People with decent credit will simply get a new loan for 70% of their principal; kind of like refinancing. That means rather than having to buy both the good and bad loans in bulk, firms can cherry pick the loans they want to buy. Any loans left after that cherry picking will have already been turned down by the potential buying firms. They're effectively un-sellable, because everyone has already turned down buying them by refusing to issue a new loan in it's place.