Mortgage Debt Defaults Continue To Plague Market
A decade ago, most people started off with enough equity in their homes to make foreclosure irrational from a financial standpoint. Consumers with significant equity in their homes were reluctant to walk away form their mortgage obligation.
But over the past few years, lenders and the mortgage-backed securities investors who bought the mortgage paper weren’t demanding substantial down payments. In fact, in response to market demands, these lenders were content with 5% or even nothing down.
Essentially, mortgage-bond investors, seemingly unwittingly, sold homebuyers a put option, without properly pricing it, and now homeowners are exercising that option.
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