Wall Street Knew 28% Of Loans That Went Into Mortgage Backed Securities (MBS) Failed To Meet Basic Underwriting Standards
Clayton Holdings, a firm that analyzes home mortgages for banks, insurance companies and governmental agencies, provided testimony and data to the Financial Crisis Inquiry Commission (FCIC), a panel established by Congress to investigate the worst financial crisis since the Great Depression. It revealed that as much as 28% of the loans failed to meet basic underwriting guidelines. The information was given to Wall Street banks that ignored the red flags, purchased the loans anyway and bundled them into mortgage backed securities.
The number of claims against firms has risen in the wake of the subprime mortgage crisis and the collapse of the housing market. Now all investors, from pension funds to individual investors, have evidence that will aid them in their pursuit of forcing banks to buy back the bogus mortgages they packaged and peddled. According to the testimony given to the FCIC, only 54% of the loans met the lender’s underwriting guidelines and 28% of the loans were outright failures. Unfortunately, 39% of these bad loans went into securitized pools and sold to investors. None of this was shared with investors and after reviewing a lot of prospectuses, Clayton was unable to find any disclosure to investors, other than some brief warning insufficient to disclose that huge portions of the loans in the pools were bad. In fact, rating agencies charged with assessing risk in the mortgage pools ignored conclusive evidence that many of the loans failed to meet underwriting standards. In a related matter, Morgan Stanley was accused of deceptive practices by knowingly placing dubious mortgages into securitized pools by the Massachusetts attorney general. The facts in that case relied on the Clayton reports of loan quality commissioned by Morgan Stanley and they settled for $102 million.
If you suffered losses from Mortgage Backed Securities (MBS), please contact our securities law firm for a no obligation consultation. Cases are handled on a contingency basis.