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Politics : Politics for Pros- moderated

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To: LindyBill who wrote (215943)	8/17/2007 11:34:51 PM
From: Nadine Carroll	Read Replies (1) of 794162

If you are a mortgage borrower and your loan is "securitized," that means that it is pooled with a lot of other loans that are sold as a large security. Once a loan has been pooled, there is no simple way to un-pool it. If the a third party were to buy the individual loan at a discount, this would have to be treated as a mortgage prepayment within the pool. Prepayments advantage some investors and disadvantage others, so the companies that created the securities could face legal challenges from investors if they do something that alters prepayment patterns. One of the disadvantages of securitization (there are many advantages) is that the rules for servicing the loans cannot be changed after the fact. My understanding is that not only are the loans pooled, but then they are sliced and diced into all kinds of derivative financial instruments. Once a set of X investors own the pool, and sets of Y, Z, etc investors own the various derivative instruments based on the pool, how are you supposed to unwind this arrangement except by revaluing the instruments? I don't understand how you could do it.

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