THREE YEARS ON CNBS finally reports……
It appears the mortgage content of many of those pools—created when the banks were dominating the mortgage securitization market in 2005, 2006 and 2007—may have been misrepresented. For example, an underwriter may have maintained that 80 percent of the mortgages in the pool were for primary residences when in fact far fewer were for that purpose. Or the underwriter stated that only 10 percent of the pool would be made of of “no-doc” loans—those that include less documentation about the borrower—when in fact the percentage was far higher.
That could be fraud, and if so, the creator of the mortgage pool could be liable. Given that the market for private label RMBS (residential mortgage-backed securities) was $1.5 trillion, the potential liability may be considerable. And while most of the originators of these mortgages are long gone, the securitizers are not.
No really?
With the exception of Lehman and Bear Stearns (oops – Bear got absorbed, so guess who got this turd?) these guys sure are still around, and the issue is not just repurchase demands – a contractual matter – but also possible fraud claims.
As I pointed out in 2007 in many Tickers (here and here for just two examples) any loan made in which material misrepresentations were involved, and which was securitized and sold on to investors, is subject to being forced back up the chain for that breach, and it, and the loss that it has accrued, which presently is running in excess of 50%, will land on the “last man standing.”
I further called this entire edifice what I believed it to be then and still do: FRAUD.
In this case since most of the originators of this trash are gone that’s going to be the securitizer who had a legal duty to tender into the trust only loans that met the quality guidelines.
Worse, that’s just direct liability. Then there’s the possibility of fraud claims that would arise from selling securities you either know or should have known (and you had a duty to investigate) did not meet quality claims in the prospectus or pooling and servicing agreements.
Finally, there’s the 900lb Gorilla – all the synthetics – CDOs, CDS and other similar instruments – that were created off these base MBS.
$200 billion? You’re dreaming. Double that – at least – since that figure is only direct repurchase risk. When one adds in the potential credit-default swap and CDO exposure, oh boy……
Ed: This stuff isn’t that hard to figure out folks. If someone is running a scam, it’s fraud. If you’re selling something to someone and intentionally concealing that you’re ****ing in the pitchers of beer, you’re robbing ‘em and if and when they figure it out you can be held to account. It’s really not any more complicated than that, and the entire bubble and resulting bust could not have happened absent these actions, which were not mistakes – they were intentional acts.
Further, if anyone is wondering why I’m savaging CNBS instead of trying to get in their good graces and be invited back on, it’s because I don’t run other people’s money, I have no pecuniary interest in appearing on their channel, and the amount of damage that people have taken by being sucked in twice now in the space of a decade by their ****-laden swill enrages me. That channel and its corporate shills owe the entire nation a personal apology – on air – and then they should all quit and walk off the set. Of course you and I all know – that will never, ever happen.
