[Rick Lee]

You know the old saying. If you owe the bank $30k, you have a problem. If you owe the bank $3 million, the bank has a problem.

The bank is the taking all the risk while the borrower is still paying off the mortgage. The borrower can walk at any time and the bank is still on the hook for the tax liens, P&I. That cuts a small hole in the bank's capitalization and risk mgt. until the note is paid. The borrower only takes a loss if, at the time he makes his final mortgage payment, his house is still worth substantially less than he paid in P&I. He still has to live somewhere, so that counts for something. Otherwise, he would have paid rent to someone. Living on the street and still paying off a mortgage is what I'd call taking 100% of the loss. Having a nice place to live, a decent tax write-off and a potential equity instrument are not what I'd call 100% of the loss. And the bank has plenty of risk until the note is paid or the princ. amount becomes negligible.