This morning while driving to Palo Alto, I heard about the latest mortgage meltdown victim, a subsidiary of the Carlyle Group, where there is apparently a $21B exposure. Taking a step back from the macro economic view, I have to wonder where the business people are in all this? After all, there is live tangible property with value backing these securities. Why aren’t these institutions working with borrowers to renegotiate the terms of the loans where payment will happen vs. simply say “we quit, we’ll never get the value out, so we’ll just foreclose and write-it-off.”

In some cases, the value of the loan is wildly separated from the intrinsic value of the property and people (lenders and borrowers) made poor decisions to enable themselves to get into that situation. However, in most cases, I have to believe that if the value of the home and the balance of the loan are within 20% of one another, there must be a way to negotiate a debt servicing scheme if only the lender and the borrower are willing. And since lenders don’t wish to become brokers, that’s in their interest (and oh, by the way, cash flow is happening for them too) and for borrowers, who wants to lose their home?

The answer may be that loans are now packaged and resold from originators to servicers in groups of loans. Since they’re now “financial instruments” it’s perhaps so abstract that people are unwilling or unable to reduce the problem to a single lender/borrower situation for solution. But I have to believe everyone would be better served if a little business and common sense were to break out around this issue.