Category Archives: Credit markets

Satyajit Das: European Death Spiral – Communicable Diseases

By Satyajit Das, the author of “Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives”

Communicable Diseases

European politicians and central bankers have provided useful geographical clarifications. Prior to succumbing to the inevitable, the Ireland told everyone that they were not Greece. Portugal is now telling everyone that it is not Greece or Ireland. Spain insists that it is not Greece, Ireland or Portugal. Italy says it is not in the “PIGS”. Belgium insists it was no “B” in “PIGS” or “PIIGS”.

EU pressure on Ireland to accept external “help” was to safeguard financial stability in the Euro area, as much as rescue Ireland. However, contagion is proving difficult to prevent.

Adam Levitin Takes Apart Securitization Industry Posturing on Ibanez, Harp Decisions

There’s a great post up by Georgetown law professor Adam Levitin on the implications and misreading of two mortgage decisions last week, the Massachusetts Ibanez case and Harp in Maine. Here are key sections: Ibanez means that to foreclosure in Massachusetts, a securitization trust needs to prove: (1) a complete and unbroken chain of title […]

FDIC Calls for Better Disclosure of Servicer Conflicts of Interest in Second Mortgates

There are lots of reasons why servicers are failing to make deep enough mortgage mods to salvage viable borrowers (ones who still have a decent level of income). One of the most troubling is that the parent bank often also has a large book of second mortgages, and writing down first mortgages would require them […]

ASF Lies Yet Again, Brazenly Asserts That Ibanez Ruling Validates Reliance on PSA for Transfers, Blank Assignments

If the ASF keeps this sort of nonsense up, it’s soon going to have the status of Pravda in the later stages of the Soviet Union, a mouthpiece of falsehoods that the officialdom is particularly eager to promote.

So What Else Has the American Securitization Forum Said That is Wrong?

As readers may recall, the American Securitization Forum came out, in what it no doubt thought was guns-a-blazing style, to attack critics of securitization abuses. In particular, the ASF was taking aim at theories of the sort advanced on this blog, and later in Congressional hearings and in a Congressional Oversight Panel report, that the notes (meaning the promissory note, meaning the borrower IOU) in many cases, if not pervasively, had not been endorsed and conveyed as required by the pooling and servicing agreements, which are the contracts that govern mortgage securitizations. In other words, the industry had committed in contracts to investors to take some very particular steps to assure that the securitization complied with a host of legal requirements to assure that the investors got the benefits of the cashflows from the mortgages, and then proceeded to welsh on their deal.

Normally, this would not be such a big deal. Contracts are often breached; the usual remedy is to get a a waiver, which sometimes might involve a payment of some sort. But securitizations are particularly inflexible agreements. From the abstract of a 2010 paper by Anna Gelpern and Adam Levitin:

Satyajit Das: European Death Spiral – Mission Unaccomplished

In early 2010, drawing on the military leadership of President George W. Bush, European leaders declared the economic equivalent of “mission accomplished”. A bailout – whoops support! – package of Euro 750 billion had shocked and awed speculators into submission. Like the Bush pronouncement, the European prognosis provided premature. The return of European sovereign debt problems in late 2010, culminating in the bailout of Ireland highlighted the deep seated and perhaps intractable problems of some over indebted European nations.

Mass Supreme Court Rules Against Wells Fargo, Deutsche Case on Validity of Mortgage Transfers in Securitizations

Bottom line: even thought the Supreme Court ruling in this Massachusetts case, Ibanez, was narrow, it still represents a major blow to the securitization industry, specifically, the argument made by the American Securitzation Forum and securitization law firms that have liability on opinions they provided on residential mortgage securitizations. It is also certain to fuel more challenges in court based on failures of the parties to securitizations to adhere to the requirements of their contracts.

US Trustee Sides With Borrowers in Foreclosures With Questionable Assignments, MERS

As we’ve suggested, a not-well-recognized effect of the widespread publicity on robo-siging abuses and more recently, the widespread failure of securitization industry participants to adhere to their own agreements is more pushback in the courts. It takes a while for new information to trickle into courtroom strategies, but as the abuses get more press, it […]

“Summer” Rerun: Brace for the Tsunami: Fitch, S&P Downgrade AIG (Updated Again)

This post first appeared on September 15, 2008 I have no idea what the morrow will bring, but if it is only as bad as Monday’s trading, we should all consider ourselves lucky. Ftich dowgraded AIG to A with a negative watch (hat tip reader Steve) S&P downgraded AIG to A-2 with a negative outlook […]

JP Morgan Markets Its Latest Doomsday Machine (or Why Repo May Blow Up the Financial System Again)

By Richard Smith

Readers of ECONned will be very familiar with the name of Gary Gorton, author of ‘Slapped in The Face by the Invisible Hand’, which explores the relation of the so-called shadow banking system to the financial crisis. His work is pretty fundamental to understanding some of the mechanisms which made the crisis so acute. Now he’s done an interview, which I would like to have a growl at.

It also happens that JP Morgan, originators of those not unmixed blessings, Value-At-Risk and Credit Default Swaps, are also thinking hard about how to get rehypothecation going in the grand style. They know a volume business with a cheap government backstop when they see one; they are on a marketing push, and presumably they have the systems and processes that go with it. That would be a Doomsday Machine…

HuffPo: Fed Reverses Position, Prepared to Rein in Mortgage Abuses

I don’t want to jinx it, but the age of miracles may not be past. Huffington Post has been reporting on the split between the FDIC and other regulators on getting tough with mortgage, more specifically, securitization, abuses. The FDIC has been serious about putting serious securitization reforms in place; it launched a well-thought-out proposal […]

Fed Plans to End Tough Sanction Against Predatory Lending

Not only has the gutting of regulation made it hard to win criminal prosecutions for financial fraud, but the Fed plans to eviscerate a key sanction against predatory lending. If you somehow still had any doubts as to whose interests are really being served by banking regulators, look no further than this latest largely under […]

StopServicerScams Petition Featured on Dylan Ratigan

Reader Doug T took note of the mention of the StopServicerScams petition on the Dylan Ratigan show today (a bit after the two minute mark):

Attorney General Tom Miller Reneges on Promise to Prosecute Mortgage Fraud (Updated)

I’m not exactly surprised at the bait and switch by Iowa’s Attorney General Tom Miller, who is leading the 50 state investigation by state attorney generals into mortgage abuses. Less than a month ago promised that he would “put people in jail” Now he’s apparently decided to adopt a “move along, nothing to see here” posture. Per Bloomberg (hat tip reader Duncan B, who also sent a copy of a stinging e-mail to his state AG):