The New York Times had a don't-miss story Sunday showing how good news for some homeowners facing foreclosure may mean bad news for everyone else.
The story looks at the market for distressed mortgage-backed securities, and explains that some of the institutions that buy these toxic assets from failing banks pass on some of the discount to the homeowners-which is good for them-but then pass on all of the default risk to the taxpayers.
Statistics show that 70 percent of loan modifications ultimately fail, the borrowers losing their homes to foreclosure anyway. Most mods do not involve a reduction of the principal balance on the loan, and though I can't find default figures for those, they're probably better. Still, a lot of these loans remain questionable even after the principal balance is reduced. The Times spoke to Steven and Marisela Alva in Pico Rivera, Calif. They got a note in the mail from a middle man company called MCM Capital Partners-the true identity of the company that bought their loan, incredibly, remains a mystery-explaining that a fund had bought their mortgage at a discount and wanted to pass some of the savings on to them: