Archive for the “General Investor Information” Category

The number of people behind on their mortgage payments increased to the highest level in six years during January 2008. It’s a trend that’s likely to continue throughout the year.Â

The amount of unpaid principal on loans more than 60 days late rose to 7.47% from 4.32% in January 2007, according to the nation’s biggest mortgage lender, Countrywide Financial Corp.

And the worst may be yet to come. Citigroup analysts say payments on $460 billion of adjustable-rate mortgages nationwide are scheduled to be reset sometime this year, with an additional $420 billion likely re-set in 2011. That means borrowers will face higher mortgage payments and an increased risk of defaulting on their home loans.

The news is just as bleak for home prices. Some experts predict an additional 20% to 25% decline in home prices this year for bubble markets like California and Florida, which could mean yet another cycle of delinquencies.

For investors in subprime-related securities, these events cast a dreary outlook for the future.Â

Our affiliation of lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage related investment losses.

New York Governor Elliot Spitzer warned legislators that losses stemming from the subprime lending crisis could severely threaten the U.S. economy, triggering the likes of a financial tsunami.

In prepared testimony before Congress on Feb. 14, Spitzer laid blame for the subprime crisis on inadequate federal regulation of the mortgage markets and the conversion of subprime mortgages into securities. The governor said federal regulators should have stepped in when investment banks securitized and marketed large volumes of bad debt.Â

Spitzer had harsh words for the ratings agencies, as well, and their role in rating subprime securities to appear as safe, high-quality investments. He urged for greater oversight and scrutiny by the Securities and Exchange Commission (SEC).

State insurance departments – some of which may not have enough capital to cover potential defaults – also were criticized in Spitzer’s testimony for not setting higher standards.

Our affiliation of lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage related investment losses.

The chaos on Wall Street just keeps getting louder.

According to a published report in the Wall Street Journal, Standard & Poor’s has downgraded or threatened to downgrade more than 8,000 mortgage investments. This means financial institutions could be facing losses totaling more than $265 billion, bringing more turmoil to a market already reeling from at least $100 billion in write-downs.

Thus far, S&P has lowered its credit rating on 3,787 classes of subprime mortgage bonds. Another 2,602 bonds were placed on “credit watch negative,” which means a downgrade is possible. Credit ratings for 1,953 collateralized debt obligations (CDOs) backed by mortgage bonds also were downgraded or threatened to be downgraded.

S&P stated that a number of financial institutions may be forced to sell some of the bonds affected by the recent ratings action. For banks that already have taken large write-downs, the downgrades may not have a negative effect. Â Others may feel the sting, however, including regional banks, credit unions, government-sponsored businesses, plus European and Asian banks that have yet to take a write-down.

In 2006 and the first half of 2007, rating decisions by the S&P have affected some $534 billion in mortgage-related investments, including 47% of subprime mortgage bonds. The S&P’s decisions also have had an impact on $264 billion in CDOs, with 35% of the instruments sold worldwide during that same period.

Looking ahead, America’s credit crisis may get worse before it gets better. David Wyss, an analyst with S&P, predicts that national home-price declines could reach 13% by the end of the year and bottom out in early 2009. That loss on mortgages – even those that do not go into mortgage-backed securities – could be as much as $400 billion when all is said and done.

Our affiliation of lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage related investment losses.

Hundreds of lawsuits and investigations are in the works as a result of the subprime mortgage collapse. The allegations are generally the same: that investment banks and big mortgage lenders are guilty of not just poor business decisions and appalling lack of foresight, but rather of engaging in fraud.Â

It’s heartening to know that regulators are out in force, vowing to bring Wall Street to justice for its mortgage finance practices. And while we don’t expect regulators to extract massive financial penalties in these civil cases, they could reveal evidence that puts Wall Street on the defensive and forces remedial action. Emerging proof of bad behavior on Wall Street could also fuel more lawsuits by private investors.

Here’s an update on the legal actions underway as of February 19:Â

• 278 subprime cases were filed in federal courts in 2007

• Cities of Cleveland and Baltimore have sued mortgage lenders, claiming that their actions contributed to the rise in foreclosures in their respective cities

• States of New York and Ohio have alleged systematic inflation of home appraisals by lenders and large appraisal firms

• Regulators in Massachusetts and other states seek to prove that investment banks failed to disclose risk and possible conflicts of interest intrinsic to certain mortgage-related securities

• Approximately 36 active SEC investigations involve subprime-related securities

Like many state securities regulators, Massachusetts Secretary of State William Galvin seems determined to get to the bottom of the subprime mortgage mess. “I think there needs to be an understanding of how we got where we are, whether that is through regulatory action, or through Congress,” Galvin says.

We’re not ready to say that legal repercussions will produce lasting reforms on Wall Street. Nor are we ready to live in a world where they don’t.

Our affiliation of lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage related investment losses.Â

Regulators have suggested splitting apart various bond insurer groups in order to “save the vital organs,” and perhaps, yank taxpayers from the edge of an abyss born of subprime, structured investment and credit implosions.Â

That sucking sound you hear is the good-faith money underwriters like Ambac, FGIC and MBIA put up to guarantee bonds for projects like highways, hospitals, sewage systems and sports arenas. As the guarantors’ funds have dwindled due to subprime mortgage losses, their credit ratings have fallen, causing something close to panic in the public sector.Â

In talks with the struggling bond insurers, regulators have suggested splitting each insurer into two separate businesses: one holding “municipal bond policies and any other health parts of the business,” and the other consisting of “structured finance and problem parts of the business.”Â

This has reached biblical proportions, one might say.Â

New York Governor Eliot Spitzer told a congressional subcommittee that the Solomon-like plan is not seen as “optimal,” but may be a last resort if insurers cannot raise the capital needed to curtail further downgrades. In testimony, New York Insurance Department Superintendent Eric Dinallo added this: “We cannot allow the millions of individual Americans who invested in what was a low-risk investment lose money because of subprime excesses. Nor should subprime problems cause taxpayers to unnecessarily pay more to borrow for essential capital projects.”

Amen to that, brother. And now let us pray.Â

Our affiliation of lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage related investment losses.Â

The FBI and SEC have launched 40 criminal probes into fraud and other crimes related to the subprime mortgage crisis. To prove each case, they’ll have to find the needle in an Everest of paperwork and trading records.Â

Though the FBI has said that prosecuting mortgage-related fraud is the FBI Financial Crimes Unit’s “number one priority,” and the SEC has assigned 100 lawyers to the cases they have working, they’ve as much as admitted that they were ill-prepared to handle the complexity and volume of these cases. Â

While they get up to speed, our coalition of attorneys is making significant headway on the (how many?) civil cases we have underway on behalf of institutions, not-for-profits and other investors who were duped by ill-conceived, mortgage-backed investments. Previous experience inside Wall Street, and our familiarity with CDO mechanics, meant we could skip the learning curve and get straight to work.

We look forward to the day when federal policing is a more effective deterrent to meltdowns like the subprime mortgage collapse. Â

Our affiliation of lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage related investment losses.Â

New York Insurance Superintendent Eric Dinallo is apparently ruffling some feathers on Wall Street as puts pressure on some top firms to formulate a bail-out plan for troubled bond insurers.

In a meeting on Jan. 23, Dinallo told 30 senior officials, including Citigroup, Goldman Sachs, Merrill Lynch, and Morgan Stanley, it was their job to take responsibility for the mortgage meltdown that has caused a loss in value of the securities guaranteed by the insurers as the housing market weakens. “You created this mess,” Dinallo said.

Dinallo, who was an aide to Governor Elliott Spitzer when he served as Attorney General, was instrumental in helping Spitzer wage a campaign against Wall Street firms that issued misleading research reports. Spitzer and Dinallo eventually won a $1.4 billion settlement from 10 firms, some of which were in attendance Jan. 23.

Eight banks and brokerage firms currently are working on a plan to rescue Ambac Financial Group Inc., which lost its top credit rating from one rating agency, with a possible downgrade on the horizon from another. If that happens, it could mean up to another $70 billion in losses for Wall Street, with local governments seeing an increase in borrowing costs, as well.

If Dinallo does get a rescue plan together, it will be one more example of a state taking charge to solve a national financial crisis, while the federal government remains idle on the sidelines.

Meanwhile, the investment-banking unit of Crédit Agricole SA is leading a separate group of banks to arrange a possible bailout of bond insurer Financial Guaranty Insurance Co.

Our affiliation of lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage related investment losses.