Wednesday, June 04, 2008

Slice and Dice

This is why I've always been pretty skeptical of any fix other than allowing bankruptcy judges modify loan terms for primary residences the way they can for investment properties and vacation homes.

June 4 (Bloomberg) -- Most of the 5.85 million subprime mortgages in the U.S. are in danger of defaulting in the next 12 months because of restrictions on changing terms of the loans, according to Offit Capital Advisors.

About 80 percent of the loans are in bonds that ``slice and dice'' rights to a mortgage's interest or principal in multiyear segments, said Todd Petzel, chief investment officer for the New York-based firm, which manages $5 billion. Lifting restrictions on loan modifications spelled out in the securities requires the agreement of everyone who has invested in them, Petzel said.

``If you could get all the investors in the same room, there's no limit to the modifications that could be made to a loan, but that's not likely to happen,'' Petzel said. ``Once you cut up a pig into pork chops and loins and hams it's nearly impossible to put the pieces back together.''