Posts Tagged ‘called loans’

Had an interesting conversation with an Econ major today who supported the bailouts on the tenant that if the banks had not been bailed out, they would have called the loans of millions of homes. Not so, I told him. The bank would be utterly destroyed had they even tried it (their reputation as a lender would have been shredded). Further, even if calling the loans resulted in the capital they needed (which it wouldn’t), it would have been a pyrrhic victory in that they would have had to close their doors immediately after. Finally, I disrupted whether such an act was actually legal.

Some brief research shows this was done in earlier part of the 20th century and again during the Savings and Loan crisis of the 80s. However, it requires a demand clause in the mortgage. It seems this is not a common practice any longer in residential mortgages. One anecdote I came across says a homeowner asked the bank about this (circa 2010) and the banker replied, “It’s not done, but there is still some legal wording in the mortgage that allows for it.”