Fixing the Subprime Mess: This Time, There’s No Jimmy Stewart at the Loan Office

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Fixing the subprime mess may be a lot more complicated than an industry-wide refinancing effort. In fact, it may be impossible, according to this very solid piece of reporting by CNN Money’s Les Christie, which we found at Patrick Kilellea’s Patrick.net.

Why? Because the loans have been packaged into big piles, sliced and diced and sold to investors (many of them not Americans) under very specific rules that appear to make refinancing of individual loans problematic at best -- kind of like unscrambling an egg. And then uncooking it.

Here’s Les Christie: ‘At a Congressional hearing Tuesday, several speakers - including lawmakers, activists and real estate professionals - called for loan modifications that would move troubled borrowers out of adjustable-rate mortgages, forgive late penalties and add late-payments to the end of the loan.

‘But this kind of restructuring may be complicated because most of the loans have been ‘securitized,’ bundled together and sold into the capital markets.

‘When that happens, mortgage service companies are engaged to run the operations, and there are only limited steps they can take when borrowers get into trouble. No longer is there a Jimmie Stewart at the loan office who can step in. ... Perhaps 50 percent of the mortgages securitized during the past few years have been bought by foreign investors.’