Question by Charles D: Why a few mortgages in a package of mortgages can make the package worthless?
Last night on “60 Minutes,” the reporter stated that one guy made a lot of money on failing securitizations of mortgages b/c he realized that if just a few mortgages failed, the whole security would be worthless. This is one part of the financial mess I never quite understood–or if I did, I’ve forgotten the explanation.
TIA
Best answer:
Answer by d3
The reason they can be worthless is because they are backing loans on homes that are in default. Some of these loan amounts are higher than the value of the home. Basically the value of a loan with negative equity that is in default is 0. Think of these like savings bond, how much would that bond be worth if it is no longer paying any divedents and the company that backs it is going out of business.
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