Asset Backed Securities

A recent CNN Money article disclosed a $10.3 billion settlement between Fannie Mae and Bank of America over questionable home loans sold during the housing bubble and subsequent burst. The article stated the large settlement would be comprised of a direct payment of $3.55 billion in cash as well as $6.75 billion paid to repurchase around 30,000 “questionable” mortgages. These mortgages were combined into mortgage backed securities, which were purchased and guaranteed by Fannie Mae and turned out to be very risky and unstable investments. It was these mortgage backed securities that helped bring down the government backed mortgagor, causing them massive losses and needing a $116 billion bailout to continue to operate. According to the CNN Money article, the loans in question were originally made by Countrywide Financial between 2000 and 2008 and the original value of the loans covered in this settlement was $1.4 trillion. Bank of America purchased Countrywide in 2008 for $4 billion. This is not [...]

Once again JP Morgan has found itself in hot water with the SEC, this time alongside with Credit Suisse. The announcement came in a recent SEC News Digest that JP Morgan and Credit Suisse agreed to settlements to pay around $400 million dollars to investors harmed by their misleading information regarding residential mortgage backed securities.The article alleged that Credit Suisse failed to accurately disclose that it retained some cash for itself when it settled claims against mortgage loan originators. Credit Suisse also was accused of making misleading statements in its SEC filings regarding its practice of repurchasing mortgage loans after a borrower missed the first payment due. Using these misleading and fraudulent techniques, Credit Suisse allegedly made $55.7 million in profits while investors lost more than $10 million. Credit Suisse agreed to pay $120 million as settlement to the SEC for the harmed investors.JP Morgan agreed to pay $296.9 million to settle the newest set of charges against them, according [...]

The Basel Committee on Banking Supervision is posed to review how securitization is regulated globally in response to concerns that current regulations are not reducing excessive risk tasking, according to a recent Bloomberg.com article. The Basel Committee is associated with the Bank for International Settlements and is a forum for regular cooperation on banking supervisory matters. The Committee consists of members from 27 different countries and is best known for its international standards on capital adequacy- the core principle for effective banking operations. The article discussed a few of the main focuses of the Basel Committee. One is a review of the liquidity coverage ratio (LCR), which was last tweaked two years ago. The ratio relates to the amount of easy to sell assets a bank has on hand and the ratio relates to how much the bank should have in order to weather a 30 day credit squeeze. Responding to calls from the Euro Central Bank and the Bank [...]

In the first suit to be filed under RMBS Working Group, JP Morgan has been served civilly over the mortgage backed securities sold by Bear Stearns, according to an article in the New York Daily News. The RMBS Working Group, created by the Obama Administration, investigates and prosecutes misconduct that contributed to the financial crisis. In 2006 and 2007, investors lost around 22.5 billion dollars in the subprime funds issued by Bear Stearns. The Attorney General alleged in his suit that Bear Stearns held these RMBS funds out as being “carefully evaluated” and that the investors were given a false sense of security. The article goes on to state that the AG alleged the executives of Bear Stearns knew of the shortcomings of the funds and yet did nothing to protect their investors. JP Morgan has responded that the actions relied upon for the civil suit filed occurred before JP Morgan acquired Bear Stearns in 2008. […]