Planet Money's Toxic Asset Apparently Is Toxic

The Planet Money team was supposed to get another payment on its mortgage-filled toxic asset. But things aren't looking so good. This month there was no payment. So far they, have received $449 but it cost $1,000 to buy the asset earlier this year.

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LYNN NEARY, host:

We told you a couple of months ago about how our Planet Money team had made a rather risky investment. They pooled $1,000 of their own money and bought a toxic asset, one of those complicated bonds filled with home mortgages that almost brought the global economy to a halt.

Well, we have some bad news to report today. The bond, which listeners have named Toxie, is not doing well at all.

David Kestenbaum and Chana Joffe-Walt have this update.

CHANA JOFFE-WALT: We bought a toxic asset so we could watch it die. But we did not expect she would be dying so quickly.

DAVID KESTENBAUM: Toxie started going downhill right after we brought her home back in March.

JOFFE-WALT: When that happened, we called the closest thing we have to a doctor: Wit Solberg, the former Wall Street guy who helped us pick Toxie.

How are you doing?

Mr. WIT SOLBERG (Mission Peak Capitol): Im awesome. How are you?

JOFFE-WALT: Good. We have a lot of questions for you.

Mr. SOLBERG: Yeah, imagine you do.

KESTENBAUM: We paid a thousand dollars and now we own a piece over 2,000 mortgages around the country. Every month, some of the homeowners make mortgage payments and a tiny bit of that money comes to us. Slowly, we get our money back - or we're supposed to.

JOFFE-WALT: In February, we got $141.33, then last month just $44. This month, well, yesterday Wit came in to deliver the news in person.

Mr. SOLBERG: The patient, Toxie, didnt get a payment this month.

KESTENBAUM: So we're supposed to get a check every month. How much is our check for this month?

Mr. SOLBERG: It's for zero.

KESTENBAUM: Zero?

Mr. SOLBERG: Yeah, there wasnt a check.

(Soundbite of laughter)

JOFFE-WALT: Wait, wait. Nothing? We're not getting anything.

Mr. SOLBRING: You're still alive though.

KESTENBAUM: She's sort of in a coma.

Mr. SOLBRING: You know, a dazed state.

KESTENBAUM: A dazed state.

JOFFE-WALT: The way the bond works, all of us waiting to get paid are standing in line and we are at the very back of the line.

KESTENBAUM: And Whit told us this month there was enough to pay off everyone in front of us but the money ran out just as it got to our place in line. And it's hard to figure out why there wasn't enough money. At first Whit thought it had something to do with the waterfall payment structure.

JOFFE-WALT: Or maybe it was some guy in California, literally - some guy in California had a big house but moved, so there's less money coming in every month.

KESTENBAUM: But it looks like it's not that guy in California. It's not that waterfall thing. It's this...

JOFFE-WALT: Loan modifications. The homeowners in our bond are getting help. Bank of America collects all the mortgage payments every month, and Bank of America has been lowering the interest rates on some of those homes, in some cases saying to homeowners, hey, that money you owe us? Don't worry, you don't have to pay it all back.

KESTENBAUM: Samir Noriega(ph) examined Toxie for us. He used to be the head of the group that traded these kinds of bonds at JPMorgan. Now he's a partner at MPM Capital Management.

Mr. SAMIR NORIEGA (MPM Capital Management): Here you have 200 grand that were forgiven, of principal.

KESTENBAUM: They forgave $200,000?

Mr. NORIEGA: That's what it looks like.

KESTENBAUM: What are they doing? I mean, I feel for that person but, you know, that was money we were supposed to be getting from them.

JOFFE-WALT: That is the reason why the money coming into our big bond is running out before it gets to us.

KESTENBAUM: So why are they doing these loan modifications in the first place? Samir Noriega says we can probably blame the government in part for this. The government has been encouraging lenders to modify home loans.

JOFFE-WALT: But Samir says even with the modifications, there is a way things can turn around for Toxie.

Mr. NORIEGA: If everyone won the lottery in this pool, however unlikely that is, and they all paid the mortgage entirely, you would be getting close to 75 grand. It's still a lot. There's hope, but it's fading very quickly.

JOFFE-WALT: Samir wasn't offering the optimism we were looking for, nor was anyone else we talked to, except Whit Solbring, the guy we bought Toxie from, if you can call it optimism.

Mr. SOLBRING: We learned a lot on this one.

JOFFE-WALT: So we're in month three and we have made back half of our money. How should we feel right now?

Mr. SOLBRING: At least you got half.

(Soundbite of laughter)

Mr. SOLBRING: Right? The glass is half full.

(Soundbite of laughter)

JOFFE-WALT: Seriously? The glass if half full? We got a check for zero this month.

Mr. SOLBRING: Yeah. No, it's...

KESTENBAUM: That's the other half of the glass.

(Soundbite of laughter)

KESTENBAUM: The full half is that some of the homeowners in our toxic asset are getting help.

JOFFE-WALT: The empty half is that that means we get nothing, and experts tell us that in a few months Toxie will die, and then we won't get any checks, even for zero dollars.

KESTENBAUM: It looks like those 2,000-plus homeowners and us, we are now in the same boat. We all bought something for more than it was worth.

I'm David Kestenbaum.

JOFFE-WALT: And I'm Chana Joffe-Walt, NPR News.

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