That is perfectly true. They sold them on as bonds. And as such the banks have to pay the interest on the bonds they sold.
If the mortgagees don't pay the bank the mortgage money, how does the bank pay the bond-owner their interest?
The people who tell me that Australian banks have 'full recourse loans' really make me chuckle.
In reality it just means the Australian banks could force many thouands of people into bankruptcy. In particular the people who spent their rising home equity on: depreciating assets, holidays, bad share investments, and booze. Furthermore the banks would be forced to sell those homes at mortgagee sales to a dwindling pool of borrowers.
Good luck to Australian banks getting their money back and servicing their bond debts IF things get worse. I hope they don't.
Joel
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$22.07 Sentiment: None Disclosure: Not Held
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