By investing virtually all of their assets in mortgage-backed securities backed by the Government Sponsored Enterprises (GSEs: Fannie Mae, Freddie Mac, and Ginnie Mae) the Agency Mortgage REITs are able to completely deflect credit risk.
In March Citi said it was reducing residential mortgage assets in the U.S. mortgage market to 20% below 2007 levels.
And now that the government is going to own these assets based on mortgages gone wrong, there is also a tension between recovering mortgage assets as quickly as possible - which could require more foreclosures - and allowing more homeowners to stay in their homes, which could make it harder to sell them back into the private market.
These were often assets that were mortgage backed and were losing a substantial amount of value at an unprecedented rate.
He did not initially ask for public funds to buy mortgage assets out of fear that Congress would say no, shaking confidence.
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Secretary PAULSON: Now that we are not planning to purchase illiquid mortgage assets, we must find another way to meet that commitment.
If the plan fails to pass, the Fed could conceivably create one itself for mortgage assets, argues Michael Feroli, economist at JPMorgan Chase.
Bankers feel obliged to advise clients against snapping up distressed securitised assets until the mortgage giants are put on a firmer footing, says one.
Fuld is also contemplating the sale of mortgage assets or spinning them off into a separate "bad bank" in which shareholders would retain an interest.
Banks, unsure of each other's economic stability because of the risks poised by the mortgage assets, have been unwilling to lend to each other and, increasingly, to regular borrowers.
The bank was badly hit during the financial crisis and has struggled with losses on mortgage assets related to Merrill and its 2008 purchase of subprime lender Countrywide Financial.
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Many banks either own assets affected by mortgage losses, or they are funding lines of credit to structured investment vehicles (SIVs) which do, and whose valuations are shaky or impaired.
The TARP, initially positioned as a pool of money to purchase toxic mortgage assets from banks, was ultimately used to inject capital directly into financial institutions in return for preferred equity stakes.
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But afraid of a deflation that is quite simply not deflation, the Fed will use all of its powers to prop up the housing and mortgage assets that necessarily need to fall in order for a recovery to take shape.
"We'd like to give management the benefit of the doubt, however questions remain, " he said, adding that the bank still had exposure to subprime mortgage assets and it remains to be seen who will be appointed to permanently head the investment-banking division.
General Electric (nyse: GE - news - people ) posted a letter on its web site, seeking to calm investors by emphasizing that the majority of its commercial real estate and residential mortgage assets are outside of the United States, whose domestic real estate crisis is at the heart of the world's current credit upset.
Its head, Archbishop Chrysostomos II, said he would put the church's assets at the country's disposal, saying the church was willing to mortgage its assets to invest in government bonds.
Securitisation, or the practice of bundling and selling more straightforward sorts of assets, such as mortgage receivables, has in one sense made banks more inscrutable, since banks are left with assets that are relatively opaque.
Most disappointment was directed at the sketchy plan to tackle banks' toxic assets, such as mortgage-backed securities and leveraged loans.
As well as being coaxed into reducing leverage, the banks may face pressure to ditch some of their illiquid assets, such as mortgage-linked securities and private-equity stakes.
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In fact, for all the current excitement about rock-star bonds and the like, it is striking that the vast majority of asset-backed securities are American and involve a few types of assets, such as mortgage and credit-card loans, which generate relatively predictable amounts of cash at predictable times.
Indeed, the Fed has spent those years buying up residential-mortgage backed securities in their attempt to take toxic assets out of the market and push down mortgage rates.
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Bondholders claimed that Citi not only misrepresented its exposure to mortgage-backed assets, but also understated losses on loans.
Insurance companies invest in bond markets, stock markets as well as alternative assets like real estate and mortgage-backed securities.
Fishman remembers being pitched on creating a securities lending program that would have used the proceeds to buy mortgage-backed assets.
The complexities of thousands of different mortgage-backed assets will make this hard.
He said banks' mortgage-based assets are being exchanged for safer government debt, therefore the government is taking the banks' risks onto its balance sheet.
The plan would allow the Treasury to buy up mortgage-related assets from American-based companies and foreign firms with a big exposure to these illiquid assets.
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Merrill was an outlier in terms of the size of its exposure to mortgage-backed assets, because of its leading role as a distributor of CDOs.
From a strictly business standpoint, these varied settlements may still be welcome milestones for Bank of America, as is the ongoing divestiture of non-performing mortgage-related assets.
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