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Money, Business & Finance Ground >> toxic asset buyback program


4/6/09 4:19 PM
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salyer36
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Does anybody have a link that explains what exactly it is?

Thanks.
7/19/09 5:10 PM
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Atecexa
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it's a bunch of BS that if you are white you wont qualify for
7/20/09 9:52 AM
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thefightingsheep
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I've heard variations of that phrase tossed about quite a bit so if you are asking about a specific policy decision please clarify.

In general toxic asset buybacks were a propoed solution to the banking problems late last year.  The idea was to have the government buy the high risk debt--like sub-prime mortgages--from the banks so that if/when this debt defaulted it would not harm the banks.  The government would then assume any losses (or gains) based on the loan defaults. 

This was orginally proposed as part of the TARP plan in 2008 (the $700 billion bank bailout) but the government decided to invest in equity in the companies instead.  It was then tossed around again a few months ago at the point when the stock market was tanking.  At that time, investors were calling for a "bad asset bank" to be established by the govt to buy those assets.  That would have been in addition to the cash injections that came from the TARP equity.

To my knowledge, neither plan was implemented and the governement has not been buying toxic assets off of the banks.  Rather they have been forcing them to capitalize (i.e. raise enough money to cover any potential losses from bad debts) and giving them TARP money to aid in this capitalization.
7/20/09 11:22 AM
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salyer36
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thefightingsheep-

I did a paper on mortgage backed securities for law and a section of it contained a section on the toxic asset program. what you described was pretty much what i had in mind when i asked the question.
7/22/09 4:13 PM
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cheech
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Edited: 07/24/09 9:42 AM
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edited
7/22/09 4:13 PM
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cheech
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Edited: 07/22/09 4:14 PM
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 "To my knowledge, neither plan was implemented and the governement has not been buying toxic assets off of the banks.  Rather they have been forcing them to capitalize (i.e. raise enough money to cover any potential losses from bad debts) and giving them TARP money to aid in this capitalization."

Something is going on because it seems banks aren't getting hurt by bad mortgages anymore. They don't want to modify loans or negotiate at all. I'm hearing this from alot of people.

I know someone who works for a law firm that cranks out foreclosures and they can't keep up. It's getting worse, not better. Especially Citigroup. They appear to be getting pummeled but don't seem to care.
7/23/09 9:46 PM
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feralpig
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"Something is going on because it seems banks aren't getting hurt by bad mortgages anymore. They don't want to modify loans or negotiate at all. I'm hearing this from alot of people."

Redefault rates on modifications of defaulted residential loans are really high.

Besides, what would you negotiate? You can't refinance into a subprime loan, because they're not being made. There aren't a lot of buyers, so extending maturity to give you time to sell doesn't work. There's no business to restructure or sell. There are no NOLs to pledge to the bank. There's just someone who bought more house than he can afford.

The bank can cut principal, but the bank also takes a hit in foreclosure and ends the relationship, instead of having a series of modifications and redefaults.

Also, no cramdowns for principal residences, so there's less incentive for banks share the pain.

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