Troubled Asset

DEFINITION of 'Troubled Asset'

Assets for which banks have overpaid such as loans that are made to borrowers who cannot afford to pay these loans back. Troubled assets are often secured by collateral that is valued less than the value of the loan itself. These personal or commercial loans were made to borrowers to cover the cost of homes, automobiles, equipment or various other items of value.

BREAKING DOWN 'Troubled Asset'

In October 2008, the government initiated the Troubled Asset Relief Program (TARP), in an effort to slow down the financial crisis of 2007-2009. The original goal of the fund was to give the U.S Treasury the purchasing power to buy mortgage-backed securities, the troubled assets which were pointed to as the cause of the crises, in order to create liquidity.

Troubled assets can be defined as any residential or commercial mortgages, stocks and bonds, debt or other instruments, based on mortgages that originated or were issued on or before March 14, 2008, which are causing financial market instability.