Sunday, January 29, 2012

Wouldn't investors in mortgage backed securities want to have accurate data on the underlying loans?

Since before the credit crisis began, your humble blogger has been promoting the creation of a database that would have for every structured finance deal its terms and the performance data for each asset backing the deal.

This is the information that investors need if they are going to be able to independently value these deals.

In her NY Times column on the newly created Mortgage Task Force, aka the Residential Mortgage-Backed Securities Working Group, Gretchen Morgenson confirms this.

Consider the most recent complaint filed by the Assured Guaranty Corporation, an insurer of mortgage securities, against Bear Stearns, the defunct brokerage firm; EMC, Bear’s mortgage origination and servicing unit; and JPMorgan Chase, which bought Bear in March 2008. 
Filed in November, the complaint shows what kinds of revealing material can be dug up by determined investigators. 
The complaint contends that Bear Stearns knew it was stuffing its mortgage-backed securities with crummy loans
It cites an e-mail written by a former EMC analyst in the unit that dealt with these instruments. 
“I have been toying with the idea of writing a book about our experiences,” the analyst wrote. “Think of all of the crap that went on and how nobody outside of the company would believe us ... the fact that data was constantly changing and we sold loans without the data being correct — wouldn’t investors who bought the MBS’s want to know that?” 
Indeed they would.

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