What Wall Street Knew: Presented With Evidence Mortgages Didn't Meet Standards

[cal04]

What Wall Street Knew: Presented With Evidence Mortgages Didn't Meet Standards, Firms Sold Them To Investors Anyway
http://www.huffingtonpost.com/2010/09/25/wall-street-subprime-crisis_n_739294.html

During a little noticed hearing this week in Sacramento, Calif., a firm hired by Wall Street to analyze mortgages given to borrowers with poor credit, which were then packaged and sold to investors during the boom years, revealed that as much as 28 percent of those loans failed to meet basic underwriting standards -- and Wall Street knew all along.

Worse, when the firm flagged those loans for potential issues Wall Street banks ignored its recommendation nearly half the time and likely purchased those loans anyway, selling them to unwitting investors who were never told that the biggest home loan due diligence firm in the country had found potential defects in these mortgages.

The revelations give a better picture of what many have likely known for years: Wall Street firms knew they were buying lead yet passed it off as gold to investors who had no knowledge of the alchemy behind the scenes. But it also has real-world implications: the data released Thursday could bolster pension funds and other investors in their pursuit to force Wall Street banks to take back the bogus mortgages they peddled. An untold number of lawsuits have been filed in the wake of the subprime mortgage crisis and subsequent housing market collapse. Thus far, Wall Street has been winning that battle.

Clayton Holdings, a Connecticut-based firm that analyzes home mortgages for banks, hedge funds, insurance companies and government agencies, provided its data Thursday to the Financial Crisis Inquiry Commission, a bipartisan panel created by Congress to investigate the roots of the worst financial crisis since the Great Depression. The FCIC held its last public hearing in Sacramento, the home of the panel's chairman, where two current and former top Clayton executives testified under oath about the firm's role in the mortgage securitization chain.

(snip)
Clayton, though, typically looked at roughly 10 percent of the pool of mortgages available for purchase, Vicki Beal, a senior vice president at the firm, said in response to a question by panel chairman Phil Angelides. But during the frenzied last months of the boom, when lenders and securitizers were trying to sell off as much as they could before the market collapsed, that figure reached as low as 5 percent.


Link between mortgages and Wall Street securities rewarded risky loans, panel told
An expert on predatory lending tells a federal commission examining the financial crisis that the process rewarded investment houses by creating the riskiest loan pool that could be given high ratings.
http://www.latimes.com/business/la-fi-crisis-hearing-20100924,0,1201490.story

[indepat]

1. Can you say and spell F-R-A-U-D: for the RICO statutes not to apply would be a mammoth

travesty of justice. :shrug:

[Warpy]

2. As long as the bubble market kept inflating with no end in sight

it didn't much matter that the loans were balloon mortgages going to people who couldn't buy houses in Detroit, much less California. The mortgage holders would make money even in a foreclosure since they could sell the place for more than they paid for it. That's why they didn't care.

However, I noticed the whole thing running out of gas in 2005. I noticed it was completely over by the end of 2005. The only thing I wonder about is why Wall Street didn't notice what I did.

[malaise]

3. Was it just Wall Street or Wall Street

and Bushco?

[Frustratedlady]

4. Does anyone believe there is a possibility they can go back on Wall Street?

Has that ever been done? Wouldn't that be interesting?

[WillyT]

5. HUGE K & R !!!

:mad:

:kick:

[ProgressiveEconomist]

6. Don't forget Greenspan's role in blocking Fed regulation of subprime. As early as Y2K,

Fed Governor Edward Gramlich warned Greenspan about the likely catastrophic bursting of the subprime bubble and pointed out that the Fed already had great power to regulate fraudulent subprime lending. But Greenspan steadfastly refused, on ideological grounds. See, for example, http://www.roubini.com/roubini-monitor/199103/wsj_greenspan_added_to_subprime_woes_by_blocking_crackdown_on_predatory_lending_and_preventing_further_supervision_of_lenders

[democracy1st]

7. K & R for later

[xchrom]

8. Recommend

[Starry Messenger]

9. I wonder if they'll get raided by the FBI too?

I slay me.