Mortgage That Matters

Toxic Assets and Real Estate

BY: Rick Soukoulis
Chairman and CEO
Intero Mortgage


President Obama has proposed a bold plan to form private-public partnerships to buy the toxic assets off the books of the nations’ books.

This could be a huge boon for the real estate lending industry.

Let me explain.

First, what are these so-called toxic assets. They are obscure financial instruments the common man has only herd of. Derivatives, CMO’s Credit Default Swaps, sub-prime mortgaged backed securities, and on and on and on. A derivative, at its heart, is simply a mirror image of a security, kind of like the real thing but not quite the real thing.

In any case, most of these assets have dropped enormously in value. The banks are afraid to mark them down to their fire-sale value, as that big a hit to capital could leave them in a severely impaired situation.

So they keep them on the books, and as long as they’re there, they’re afraid to really start lending again.

Through a variety of accounting games, they can avoid taking the real mark down, so while they avoid taking a huge loss, they’re also uncertain enough about just how toxic these are that they don't want to go too far out on the lending limb.

The great thing about the Obama plan is that it gets private institutional money involved, an the assumption is that there will be a true market in these assets, and not just prices based on s fire-sale.

As these assets are moved off the balance sheets of our banks and into the hands of private investors, the banks will start lending again, and that will play a very big role in the economic recovery.

While it’s much harder these days to get a mortgage loan, it’s still very possible.

But if you apply for s loan to buy an apartment building or build an office building, it will be almost impossible. Construction loans are almost impossible to get, and subdivision builders, especially the smaller ones, just can't find financing.

I could go on end on about the areas that have been impacted by banks with toxic assets. All of these areas will again feel the free flow of cash and new loans.

It will be a part of regaining our economic health and getting people back to work.

But as Jay Leno said, if you’re going to be selling these things, don’t you think you could call them something other than toxic assets?


Rick Soukoulis
Chairman and CEO
Intero Mortgage
408.578.8700