The Residential Real Estate Crash Index Message Board

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Strategies & Market Trends : The Residential Real Estate Crash Index

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To: ild who wrote (7775)	1/3/2003 11:12:31 AM
From: Elroy Jetson	Read Replies (1) of 306849

In order for a lender to take a loan off their books someone else has to take a substantial part of the risk. However this does not mean all the risk. Before Glendale Federal went under, their widely admired earnings were based on service income from loans they originated and sold - 37 times what their capital would have allowed if they had not sold off the loans. But the CMO buyers were only liable for loan risk up to a certain level. Beyond that level, Glendale Federal still owned the risk - which is why they went under when 1990 happened. I don't know what the limitations are on reserved risk, or if they have been changed since then. This requires more detail about bank reserve accounting rules than I'm familiar with.

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