No. 2: Baskets O' Loans

Is our ability to deal with the downward drop in residential real estate impaired by the fact that economic ownership of the mortgages is scattered - held "out there" in the market? How do you administer that?

Well, wait. There is someone - let's call him the Collection Agent - who is in the chain and has a list of debtors. When they make a payment, the CA checks it off, takes a little piece, and sends the balance along. At the other end there is someone - let's call him the Distribution Agent. When money rolls in the DA looks at his list of holders, checks them off, takes a little piece, and sends them their share.

So the CA knows who is going into foreclosure and the DA knows who is going to have to take less than expected.

So this time, in contrast to No. 1 below:

When it's time for the debtor to give up, he surrenders ownership of the house to the CA (which holds for the ultimate owners) but the debtor can continue to live there as a tenant. Rent is enough to cover major maintenance, insurance, taxes, and costs of administration of the arrangment by the CA and the DA, but zero is applied to debt service. The tenant has to keep the place up. The ultimate owners keep the loan for, let's say, 10 years. At the end, or if the property can't keep a tenant on those terms in the meantime, it's sold and then the CA, the DA, and the ultimately owners divvy up any proceeds.