Don’t blame the Mortgage Lenders. They were forced to loan to unqualified borrowers.
Created in 1978, CRA forced the mortgage lenders to make loans to unqualified borrowers. The lenders were able to avoid the CRA for awhile. Until…
In 1998 a Chicago bank was sued by an ACORN attorney for not implementing the CRA and won. That set the precedent for other banks to make loans to unqualified borrowers.
WMI/WMB got smart and packaged the loans and securitized into Bonds offerings (and Preferred). F&F, Lehman’s did the same. The securities were sold to the public. The Trustees were required by the Prospectus to insure the securities. The insurance contract would be Derivatives (Credit Default Swaps). The securities were rated by S&P, Moody.
JPM provided 57%, BofA ~30% of the CDS
Now WMI/WMB would also buy theirs and others securities for the cash flow. About $300 a year from a WMI Series R Preferred. (WMIIC). Because the securities are insured, the banks now have near zero exposure to the loans default. The mortgage lender just needs to putback a similar loan back into the pool (securities).
By example using F&F; According to the FDIC “WMB securitized $2 Trillion in RMBS of which $500 Billion was sold to F&F.” F&F bought WMB performing insured securities that are accumulating in a Delaware Statutory Trust.
F&F are about to receive $1.1 Trillion from the DST. And my numbers are conservative because that doesn’t account for other securities purchased by F&F.
The LIBOR Litigation is all about the Derivatives writer setting. CDS.
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