I mean, the basic concept behind the practice is worrisome enough: banks foreclose on a property when it goes into default, discover that the foreclosure sale doesn’t recoup their losses, so they get a ‘deficiency judgment’ to try to get the rest from the original borrower. So far, such is life – but where it gets worrisome is where they resell the judgments to third parties.
The increase in deficiency judgments has sparked a growing secondary market. Sophisticated investors are “ravenous for this debt and ramping up their purchases,” says Jeffrey Shachat, a managing director at Arca Capital Partners LLC, a Palo Alto, Calif., firm that finances distressed-debt deals. He says deficiency judgments will eventually be bundled into packages that resemble mortgage-backed securities.
Yes. Indeed. That particular practice is what got us into this mess in the first place. Thanks, Barney Frank! Continue reading This WSJ article on deficiency lawsuits leaves me curiously unsympathetic.