This is why you don’t cram down loans…

As it turns out, the investors who buy the securities that are backed by the loans don’t like their money being crammed down. Who knew?

Hideo Shimomura, chief fund investor in Tokyo for Mitsubishi UFJ Asset Management Co., told Bloomberg Friday that “there is still a concern that there is no guarantee” of agency debt and securities, even after the Obama administration has said it will sink as much as $400 billion in increased funding to backstop the operations of the GSEs, as part of its Homeowner Affordability and Stability Plan, or HASP.
“Looking at the risk, [GSE bonds are] not so attractive,” he told the news service. “We need a guarantee before we’ll buy.”

Simplistically, this is all about whether or not the government will backstop Fannie and Freddie. But it’s more complicated than that and it falls right down to whether or not we’ll honor the money these people invested. Foreclosure is one thing; cramming down is a quite another.

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