Monthly Archives: December 2011

#onepercentproblems

In fact, around this time there had been efforts by some of the big Wall Street firms to salvage their triple-A tranches by buying actual mortgages and preventing enough foreclosures to keep those tranches from eroding. Bear, which owned the mortgage originator EMC, announced the EMC “Mod Squad” in early April, which was supposed to help delinquent borrowers avoid foreclosure. Other firms, including Merrill Lynch and Morgan Stanley, were meeting to see if they could do something collectively to keep home-owners from defaulting. The simple act of buying up the mortgages and then forgiving the loans would not only save homeowners, but save Wall Street billions of dollars in potential losses.
But there were all kinds of problems. Regulators were deeply suspicious. The firms themselves worried about antitrust concerns. And the servicers, as one person involved in the effort put it, “were largely controlled by people who might not want mortgages rescued.” Still, this source adds, “it should have been possible to overcome.”
It wasn’t to be. In particular, a number of the big investors who were short the triple-A tranches were furious when they discovered what was going on. They were going to make money if enough homeowners were foreclosed on! They didn’t want anyone helping out homeowners at the expense of their profits.

–Bethany McLean and Joe Nocera, All the Devils Are Here, pp. 289-90.