The Feds have a new plan to buy the bad debt from banks. It looks like they want private investors to pay 6%, FDIC to take 84%, and 6% to come from the $700 Billion bailout funds and since this does not add up to 100% the Banks must be taking a 4% hit. From day 1 the Feds have been talking about buying the bad debt. The reason these loan are bad is very simple. The ones that borrowed the money stopped paying the loans back. If the loans are not being paid back then the holder of the loan is not making any money.
So, The Feds want private investors to take a stake in non-performing loans and investors only invest to make money. The only way investors can make money from these loans is if the homes held as collateral are sold.
Now I have asked this multiple times and no one can give me an answer. How will these homes be sold? Will the Feds create a new Asset Management company, Use existing Asset Management companies or use the system they have set up right now through HUD?
Either way these homes have to be sold at some point and refinancing them will not work.
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