Asset Backed Securities

Kara Scannell of the WSJ reports that securities regulators, broadening their review of Wall Street’s role in the mortgage industry, have asked several brokerage firms for information about the marketing and sale of mortgage-related products, specifically those sold to individual investors. The Financial Industry Regulatory Authority, Wall Street’s self-regulatory body, last month sent letters to firms asking for documents, including marketing materials, a list of supervisory policies and procedures, and descriptions of how collateralized mortgage obligations were valued, according to a copy of the letter reviewed by The Wall Street Journal. The letters were sent to more than a dozen brokerage firms believed to be involved in the CMO market, one person familiar with the matter said. It is unclear which brokerage firms received the letter. To read full article click here. […]

Sudeep Reddy of the WSJ reports that the number of homes starting foreclosure jumped in the third quarter to the highest level since the Mortgage Bankers Association began keeping track in 1972, while the fraction of homeowners behind in their payments rose to the highest level in 21 years. Both reflect the continuing credit-market turmoil, a slowing economy and falling house prices. Foreclosures rose for all types of mortgage loans, according to the association’s quarterly survey. But the upturn was sharpest for adjustable-rate mortgages, including homeowners with better records who are considered to be in the “prime” loan category. For full story click here.  […]

Greg Ip, Mark Whitehouse and Aaron Lucchetti of the WSJ report that the home has long been the bedrock asset of most American families. Now, its value has become the biggest question mark hanging over the global economy and financial system. Over the past decade, Wall Street built a market for more than $2 trillion in securities sold globally and backed by loans to U.S. homeowners on two long-accepted beliefs and one newer one. The prevailing logic: The value of the American home would never fall nationwide, and people would almost always make their mortgage payments. The more recent twist: Packaging mortgage loans and turning them into securities would make the global economy more resilient if anything went wrong. In a matter of months, though, much of the promise of the new financial architecture — together with its underlying assumptions — has proven to be a mirage. As house prices fall and homeowners default on mortgages at troubling rates, the [...]

Jennifer Woods of CNBC.com reported that though most mutual funds have managed to steer clear of the subprime mortgage mess, some with heavy stakes in riskier and shorter-term bonds, asset-backed securities or sizable holdings of value stocks have particularly paid the price. According to Paul Herbert, senior mutual fund analyst with Morningstar, Fidelity has a number of funds that fall into the troubled asset-backed securities category. One is the Fidelity Ultra-Short Bond fund, which has about $785 million in assets. The fund has a 37.1% weight in asset-backed securities; as a result, its total return is down about 3% year-to-date, according to Morningstar.com. (Weightings are as of Sept. 30, according to Morningstar.com). Compared with benchmark index, the Lehman Brothers Aggregate Bond Total Return Index the fund is down 7.7 percentage points. Fidelity Short-Term Bond Fund has also been impacted, though to a lesser extent. This fund, with assets of more than $7.31 billion and about a 16.3% weighting in asset-backed [...]