Good Question

DENVER (CBS4) ― They sound downright poisonous and to banks they are. Monday's announcement of a plan to help banks take the so-called toxics off their books sent the markets soaring. That was quite a turnaround -- at least temporarily. Toxic assets are, mostly, the investments backed by risky subprime mortgages that are held by the larger U.S. banks that have lost value.

"It's a loan that's not performing, which means it's a loan that's not making payments," said Sue Allon of Allonhill. "Or maybe it's missed some payments. It can also be a loan that's in foreclosure."

It started in early 2007 when the mortgage crisis hit and defaults on subprime home loans, those made to borrowers with tarnished credit histories, began to climb. That gutted the value of the mortgage-backed securities -- subprime mortgages bundled together and sold on Wall Street to investors -- held on the books of the big banks.

The banks have been reluctant to sell them because they'd have to show huge losses. When the banks -- like Citigroup Inc., Bank of America Corp. and JPMorgan Chase & Co. -- started writing down the value of the securities, they reported billions of dollars of losses. Their capital eroded and they didn't have the money to make loans. Credit dried up. Banks large and small foundered and failed. The crisis was in full throttle.

"There is a lot of money on the sidelines right now," Allon said. "Billions of dollars."

Her firm in Denver does loan review and detecting; deciphering what a given mortgage might be worth. Is the borrower making some payments? Does the borrower have a lot of other debt? It's a way of valuing the toxic assets. It's going to be a growth industry after Monday's announcement.

Allon says she'll be looking for perhaps a couple hundred people.

"We hire professionals, analysts, people with mortgage due diligence experience; mortgage servicing experience and most of them can work from home," Allon said.

What are the packages of mortgages really worth?

"I think we are seeing loans, toxic loans trade at around 30 to 40 cents on the dollar. So a $100,000 mortgage trading for $30,000," Allon said. "We're seeing the property once it's already been foreclosed, and it has a current market value of say $100,000. We're seeing that trade for about $60,000 because investors know there is a tremendous amount of risk to taking on that property, taking it to market, finding a buyer and selling it."

Investors may like this latest bailout plan because the government is bearing a lot of the risk in hopes that housing values will come back up. For every $100 in bad assets being purchased, private investors would put up $7 to be matched by $7 from the government. The remaining $86 would be covered by a government loan, provided in many cases by the Federal Deposit Insurance Corperation (FDIC) -- the same folks who provide insurance to make sure depositors don't lose all their money when a bank fails.

The hope is that credit will start moving again. Investors who buy the packages of mortgages will be in a much better position to renegotiate the terms with borrowers. That will mean holding up home values.

"I think a lot of these are going to maximize their value by selling fairly quickly," Allon said. "Getting that mortgage modified, getting that borrower on their feet and then selling that current asset."

After that Allon says it can be called it a good loan.

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