US Treasury or US Treasury backed front like (*)FNMA GNMA Freddie Mac
or new institutions like those as a front for the bank- underwriters
Makes a tender offer (fixed rate to all investors)for the for
the entire mortgage pool all tranches
(Equity Mezzanine Super and Senior and Junior etc)
and the collateral for the CDO. Price fixed at 55% for example.
Original Mortgage borrowers of the CDO
Residential and Commercial
are offered a chance to buy back
their motrgages at pennies on
the dolar ie 55%
(*) ie if done properly taking a spread and becoming a
solvent self propagating institutions again
Homeowner or commercial borrower Borrows
If a residential borrower whose debt was toxic
he'd get aHELOC say at 4 points
or higher for a commercial borrower
so the homeowner pays 55k and retires her debt (!)
lets say a 100k 6 point 30 year fixed.
Their debt service is reduced tremendously.
Negative equity is reased.
much more than that amount in TOXIC BANK DEBT is ERASED
Who better to BUY the toxic debt than the ORIGINAL BORROWER!
they have huge incentives if you offer them this at a steep discount
The aquisition of collateral via tender offer
reduces the toxic debt.
The opportunity to to sell the assets wihtout a
liquidity penalty for having to take
these securities liquid at a deep discount
as on the open markets they are not worth very much tehse toxic debt instruments
if you will through tenderoffer
should get them a higher price for the
toxic debt
Market for the tranches will
pick up if dealers anticipate
tender offers as oputlined above
Imagine the unhappy CFO when her company went into bankruptcy she had signed with her name and not the three letters CFO
