Imagine a storage room filled with big boxes, and each of those boxes is filled with folders, each of which is somebody's mortgage loan. Each of these big boxes represents a 'pool' of loans. Normally, after the mortgage company fills one box (pool), they sell it off to an investor to recover their money (at a profit) so they can lend it out again for new mortgages. And the cycle repeats itself.
Each of these pools meant to be sold to investors is made of similar types of loans organized into groups with names such as 'FHA', 'conventional', 'subprime', 'Alt-A', 'Currently Delinquent', 'Foreclosing' etc. While the first two kinds of loans (FHA and Conventional) still have a market, no investor wants anything to do with the latter 4 kinds, and therefore they get labeled as 'toxic assets' and they just sit there, tying up resources (hopefully this makes it more clear why lenders are being so picky about the loans they accept; the last thing they want is more files that they can't get rid of).
how to get a loan with bad credit, fast loans bad credits, Sameday Payday Quick Cash Now 1000,
Let's look at this a little closer. Imagine that one of those boxes has an original value of $100, but the seller wants to get rid of it so they're willing to sell it at a discount; let's say maybe $75 or $85. However, the only bids you're getting on it are for about $35; significantly less than what you paid for it. As a seller, a decision needs to be made whether to sell it at that much of a loss and take a write-down, or hold off for a higher bid. As long as you sit on it, no money is exchanging hands and everything 'freezes'.
Let's look at another example of what's causing lending institutions and investors to not exchange funds. This time you, as a lender, have a pool of performing loans (meaning they're being paid on time and working just fine), but they are labeled HELOCs (Home Equity Lines Of Credit). Apparently, the going bid on that $100 box is about $5... Lenders are understandably unwilling to sell at that deep a discount. Therefore, once again, everyone sits and waits and there is no flow of money, credit markets freeze, jobs are lost and we find ourselves in a recession.
The basis of the Treasury's plan is the government, along with private investors, will buy up these toxic assets, thereby freeing up money for lenders to start making new loans again. However, the government will not (i.e. CAN NOT) buy all these assets. Its intention is simply to get things started so that the private side will see that it's safe to join in the process and start absorbing some of this toxic inventory.
The plan (idea... hope???) is that if the government (i.e. we the tax payers) are able to buy a box at $35 or $40 today, and later, once the markets have normalized, we sell it for closer to the 'true' $100 value on the secondary market, we will not only make our money back but we'll make a profit. However, the only way for this idea to really work is if the government creates a floor to the pricing because lenders are obviously not selling at such low prices. Figuring out the details for this piece of the plan has yet to be announced, which is what is keeping Wall Street edgy.
Another concern about the program that has been brought up is its reliance on private investors. The fear is that the government might put limits on how much profit investors can make from these investments by setting the floor too high. The problem with that is that investors will only get involved if they see an opportunity to make very good returns on their money. After all, why would they accept the significant risk of buying toxic assets if the up-side potential is limited? That wouldn't make good business sense and wouldn't be a wise investment for anyone to make.
Need Money? Let Me Help You
Take advantage from the innovative CreditGraph lending technology today.
cash loan today
Online Payday Loan Up To $ 1,500 In 1 Hour. No Credit Required. Easy Fast Approve. Get Cash Fast Today!
No comments:
Post a Comment