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Although you won't find the term in your dictionary, toxic assets are assets that have decreased so much in value that no one will buy them. The term became popular, perhaps, after Countrywide Financial's founder, Angelo Mozilo, used the term to describe some of Countrywide's mortgage products.

During the subprime mortgage crisis, many mortgages were rendered "toxic" (i.e. worth less than their face value for a host of reasons) and the banks were, for all practical purposes, now "stuck with them."

Although the government has intervened to purchase back a significant portion of these toxic assets, many banks and other major financial-institutions are still unwilling to sell their existing toxic assets at a significant loss, since that would force the banks to admit their stated assets are now significantly reduced; making them appear insolvent.

So the result is a "stand-off" of sorts: The banks want all the cash they can extract, but they are reluctant to take the losses that are inherent to a vast majority of the short-sale proposals or deed in lieu offers - and the properties just keep going to foreclosure.

But way too many foreclosures are not "public auctions" at all. They are really just an exercise where the bank (or Freddie Mac - or Fannie Mae) buys the property to "foreclose" (i.e. sweep under the rug) the corresponding toxic asset that isn't saleable. The rationale, perhaps, is that the bank now owns something (the actual property) that they think can be sold for more than the mortgage they foreclosed.

However, in a March 18, 2009 article entitled "Fannie, Freddie REO inventory swells - Eight homes foreclosed for every short sale," Inman News reported that:

"Fannie Mae and Freddie Mac boosted loan modifications by 76 percent in the last three months of 2008, but nearly doubled their inventories of real estate-owned properties over the course of the year as the companies eschewed short sales and seized properties faster than they could sell them....Fannie and Freddie's regulator, the Federal Housing Finance Agency, submitted a report to lawmakers today detailing actions taken to prevent unnecessary foreclosures."

Maybe this is the real problem (first sentence at the new FHFA website):

"Welcome to the Federal Housing Finance Agency (FHFA). This Web site premiered October 27, 2008, as the portal to information about this new agency, which was formed by a legislative merger of the Office of Federal Housing Enterprise Oversight (OFHEO), the Federal Housing Finance Board (FHFB) and the U.S. Department of Housing and Urban Development (HUD) government-sponsored enterprise (GSE) mission team. FHFA regulates Fannie Mae, Freddie Mac and the 12 Federal Home Loan Banks."

I've got new for you. It's going to take more than a glorified "legislative merger" to solve this problem.

- Ed Smith