The Three Mortgage Bond Stories You Must Read Right Now

Start withFelix Salmon’s investigationinto the way banks profited from faulty mortgage pools.

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"In any case, it’s clear that the banks had price-sensitive information on the quality of the loan pool which they failed to pass on to investors in that pool. That’s a lie of omission, and if I was one of the investors in one of these pools, I’d be inclined to sue for my money back. Prosecutors, too, are reportedly looking at these deals, and I can’t imagine they’ll like what they find.

Then move on to Diana Olick’s piece on how Deutsche Bank, Wells Fargo, Bank of New York Mellon, and US Bank could be liable to investors in mortgage backed securities for which they acted as trust agents."

Finally, check out David Faber’s take on the possible liability of the securitizers.

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.