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Bank Stocks Crushed as New Mortgage Issues Emerge

Friday, 15 Oct 2010 | 11:31 AM ET

Banks stocks are getting crushed again today as investors wake up to a fear we first told you about yesterday: That significant liabilities are possible for the big banks who securitized mortgages due to misrepresentations about the standards attested to for the mortgages in the pool.

Suddenly, and perhaps because of the focus on the separate issue of problems in foreclosing on mortgages, investors have awakened to this emerging issue and are trying to understand the true liability for banks, such as Bank of America and JP Morgan.

That is difficult to do. There were some $2.5 trillion worth of private—not Fannie Mae and Freddie Mac —mortgage securitizations done from 2005-2007 (including prime mortgages) and many would say the value of those securities has fallen by at least 30 percent since they were issued.

That does not mean the banks are on the hook for anything near that amount or will not ultimately prevail in the court cases that are ongoing and the ones that are yet to come.

On The Strategy Session today, we will have the lead attorney on behalf of the owners of many of those securitizations, including the Federal Home Loan Bank (FHLB), who is suing the banks.

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