Post by jeffolie on Jul 27, 2007 13:26:18 GMT -6
"Investment banks that bundle and sell home mortgages often commissioned reports showing growing risks in subprime loans to less creditworthy borrowers but did not pass much of the information to credit rating agencies or investors, Wall Street sources said."
The mortgage consultants, known as "due-diligence firms", were hired by investment banks to make sure blocks of mortgages conform to the mortgage seller's own standards. The studies provided a first glimpse of loan quality for ratings agencies and investors who do not normally see the full reports.
"If all the information about these investments was properly disclosed, our client would have made different decisions...and, specifically, not bought these investments," said Dale Ledbetter, a Florida attorney suing Credit Suisse Group (CSGN.VX: Quote, Profile, Research) on behalf of an insurer that lost money on mortgage bond investments.
While subprime mortgage security prospectuses warned about the perils of such loans in recent years, they did not enumerate the findings of due diligence reports.
"The International Organization of Securities Commissions code of conduct requires that they use all available information in their ratings process," he said. "To require them to look at due diligence would move them to another level of responsibility."
Mortgage securitizers relaxed their due-diligence tests during the housing boom just as lenders loosened their loan standards in that time but all sectors of the market are retrenching now, Clayton's Johnson said.
"We are in a correction process right now," he said.
www.reuters.com/article/reutersEdge/idUSN2743515820070727?pageNumber=1
The mortgage consultants, known as "due-diligence firms", were hired by investment banks to make sure blocks of mortgages conform to the mortgage seller's own standards. The studies provided a first glimpse of loan quality for ratings agencies and investors who do not normally see the full reports.
"If all the information about these investments was properly disclosed, our client would have made different decisions...and, specifically, not bought these investments," said Dale Ledbetter, a Florida attorney suing Credit Suisse Group (CSGN.VX: Quote, Profile, Research) on behalf of an insurer that lost money on mortgage bond investments.
While subprime mortgage security prospectuses warned about the perils of such loans in recent years, they did not enumerate the findings of due diligence reports.
"The International Organization of Securities Commissions code of conduct requires that they use all available information in their ratings process," he said. "To require them to look at due diligence would move them to another level of responsibility."
Mortgage securitizers relaxed their due-diligence tests during the housing boom just as lenders loosened their loan standards in that time but all sectors of the market are retrenching now, Clayton's Johnson said.
"We are in a correction process right now," he said.
www.reuters.com/article/reutersEdge/idUSN2743515820070727?pageNumber=1