Archive for the “Mortgage Backed Securities” Category

A 15-member task force composed of local, state, and federal investigators is scrutinizing mortgage lenders and Wall Street firms involved in the subprime mortgage crisis. The probe, initiated by federal prosecutors from New York’s Eastern District, will look for potential crimes like insider trading, mortgage fraud by brokers, and securities and accounting fraud.

Prosecutors will examine questions affecting investors such as:

• Did lenders change credit histories or other facts about borrowers before issuing loans and selling the loans to Wall Street firms or banks, who packaged them into securities to sell to investors?

• Did mortgage lenders misrepresent their firms’ quality of mortgage loans, growing number of loan defaults, or financial position in securities filings? Did they use questionable accounting methods to cover up losses?

• Did Wall Street brokers mislead investors about their collateralized-debt obligations? Did some say their obligations were backed by corporate debt instead of shaky subprime mortgage loans?

• How did lenders originating loans potentially deceive or violate agreements with the Wall Street banks that funded them? For instance, investigators will examine whether selected lenders lied about the status of their loans, neglecting to repay Wall Street firms after selling their loans directly to companies like Freddie Mac and Fannie Mae.

This task force is just one of many investigations taking place, including one looking at the circumstances that led to the collapse of two of Bear Stearns’ hedge funds last summer after losses linked to mortgage-backed securities. In addition, prosecutors are examining whether the country’s tenth-largest mortgage lender, American Home Mortgage Investment, filed false statements and committed accounting fraud prior to its 2007 collapse and whether UBS AG inappropriately valued its mortgage-securities holdings. These findings may affect investors’ ability to recover lost assets.

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

What was once a Wall Street success story is now a company caught up in scandal. Investment firm Regions Morgan Keegan has been accused of using deceptive marketing practices to pass off risky subprime mortgage-backed mutual funds to clients - funds that have now tanked in value.

Investors, who say they were blindsided by Morgan Keegan, are responding in their own way: with lawsuits - and plenty of them.

Reportedly, an average of two lawsuits has been filed against Morgan Keegan every month (excluding January) for the past five months. And apparently that’s gotten the attention of management. Pending shareholder approval, directors of seven RMK funds have signed an agreement removing them and the funds’ director from managing the funds. The funds would then be transferred to Hyperion Brookfield Asset Management of New York.

Shareholders will vote on the transfer agreement on July 11.

The developments involving Morgan Keegan are disturbing on many levels. If allegations of misrepresentation prove to be true, the bonds of trust between RMK and its clients may be damaged beyond repair. At the very least, it is a signal to all investors to take a long, hard look at their portfolio. If you have invested in an RMK mutual fund and sustained significant losses, we encourage you to contact us so we can evaluate the facts and circumstances of how those investments were presented to you and whether they were appropriate in the first place.

The seven mutual funds in question include four Regions Morgan Keegan closed-end funds: Advantage Income Fund, High Income Fund, Multi-Sector High Income Fund and Strategic Income Fund. The other funds include three open-end funds: Regions Morgan Keegan Select Short Term Bond Fund, Intermediate Bond Fund and High Income Fund.

It’s unclear how the changing of the guard will affect the nine pending federal lawsuits.Since its founding in 1969 by Morgan and James Keegan, Morgan Keegan has been heralded as a Memphis success story. In 1970, the company purchased a seat on the New York Stock Exchange. In 1983, Morgan Keegan became a public company. And in 2001, the company was acquired by Birmingham-based Regions Financial.

The mutual fund meltdown that has since followed Morgan Keegan is becoming a familiar reality these days. On the advice of their broker, investors say they turned to RMK mutual funds as a “stable” type of investment. What investors didn’t know - and what they say Morgan Keegan failed to convey - was the critical fact that the funds had ties to investments in subprime mortgage-related assets and corporate junk bonds.

When the subprime mortgage crash hit, these investments took substantial losses - some losing more than 75 percent of their value. As for investors, many saw their retirement savings, money for children’s college education and life-long nest egg vanish almost overnight.

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 Securities and Exchange Commission (SEC) is on the hot seat, with Congress urging the regulatory agency to improve its oversight of credit-rating firms. The firms - including Fitch Ratings, Moody’s Investors Service, and Standard & Poor’s Ratings Services - are being criticized for missing the mark when it came to assessing the risks of mortgage-backed securities.

Both business analysts and political leaders claim that mistake played a major role in the subprime mortgage crisis, which has since roiled the financial markets. Many believe the credit-rating agencies were blinded by their relationships with various debt issuers, because the issuers typically pay rating agencies to grade their debt.

Prior to the subprime fallout, Fitch, Moody’s and Standard & Poor’s each had given highly favorable ratings on the quality of many mortgage-backed securities. Then, after the subprime crisis hit full force and the credit crunch ensued, the rating agencies did an about-face, downgrading thousands of mortgage-related investments.

Accusations of conflicts of interest between rating agencies and issuers have been the subject of numerous news articles. A story in the Wall Street Journal reported that Moody’s periodically switched ratings analysts from certain deals at the request of the Wall Street firms, as well as altered its approach on other deals after Wall Street firms complained.

This isn’t the first time credit-rating agencies have found themselves in hot water. Two years ago, they were taken to task for failing to reduce their investment-grade ratings of Enron to junk status until four days before the company’s collapse. Shortly thereafter, the Credit Rating Agency Reform Act was signed into law, which gave the SEC additional authority to oversee rating agencies.

Now the SEC is being called upon to exert that power. Reportedly, it is considering a wide range of rules to strengthen accountability and transparency of the rating agencies, as well as a new scale for measuring mortgage-related and other structured-finance bonds.

Meanwhile, the credit-rating agencies can expect continued backlash in the weeks and months ahead over their critical misstep in putting investment-grade ratings on so many mortgage-backed securities. Not only have they lost credibility in the investing community but they also may very well find themselves in court for rubberstamping those doomed subprime deals.

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.

Hoping to insulate themselves from volatile equity markets, countless investors have turned to money-market funds over the past year as a way to minimize their investment risks.

Unfortunately, risk comes in many forms.

The latest worries regarding money-market funds have to do with corporate debt that was exposed to mortgage-backed securities. Just as some money-market funds invested in subprime mortgage-related loans, they also lent money to structured investment vehicles, or SIVs.

Recently, Legg Mason Inc., the second-largest publicly traded asset manager in the country, agreed to provide as much as $400 million to bail out an institutional money-market fund from potential losses on debt issued by SIVs. The rescue will cut Legg Mason’s profit by $195 million for the quarter ending March 31.

Since November, the Baltimore-based company has lined up $1.97 billion to prevent losses on three money-market funds that purchased SIVs. As of March 28, Legg Mason managed a total of $176 billion in money-market funds.

Andrew Richards, an analyst with Morningstar Inc. in Chicago, calls the Legg Mason situation the “worst” of those facing money-market funds. On the bright side, however, the company is at least detoxifying its funds, he says.The bottom line: Money-market funds, once thought to be as safe as cash in the bank, can indeed pose risks for investors. As the securities issued by SIVs continue to go downhill, more money-market fund managers like Legg Mason may be stepping in with cash and bail-out plans of their own.

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

If the current state of the housing market were a book, its title might be something like, ‘There Goes the Neighborhood.’

Every day, the headlines proclaim the sorry state of the housing crisis. More troubling is it could be far worse that what’s already being revealed by government and industry statistics.Â

Mark Zandi, chief economist for Economy.com, contends many lenders may be distorting foreclosure rates by allowing delinquent homeowners to remain in their homes long after they have defaulted on their mortgages.

According to Zandi, some lenders are reluctant to initiate foreclosure procedures on homeowners because of cost and time factors. Legal fees and maintaining a vacant property while paying insurance and taxes can be expensive. The legal process itself can take months, during which time the lender is responsible for the home’s upkeep.

“Some people stay in their houses until someone comes to kick them out,” said Angel Gutierrez, owner of Dallas-based Metro Lending. “Sometimes no one comes to kick them out.”

At some point, however, the inevitable must happen. And prolonging the process may only make matters worse, creating a flood of foreclosed homes in an already debilitated housing market.

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.

With the nation’s current housing slump compared to the Great Depression, the question on everyone’s minds is how much worse can it get?

As reported in a March 17, 2008, article in Fortune magazine, noted Princeton economist Paul Krugman predicts that by the end of 2008, more than 20 million Americans could be sitting with mortgages worth more than the value of their homes. That’s almost a quarter of all homes in the United States.

The negative equity will cause many homeowners to face foreclosure, according to Krugman, who says the country could be looking at up to $7 trillion in capital losses in housing, and $1 trillion of losses on mortgage-backed securities.

Even if Krugman’s forecast is only partially on target, the consequences are nonetheless dire. A further drop in housing prices will prolong a recession, with people unwilling - and unable - to spend money. A domino effect could then ensue, with more unemployment, sagging retail sales and negative projections from Wall Street.

To no surprise, Krugman reserves his most foreboding comments for mortgage-backed securities. Despite the Federal Reserve’s $200 billion temporary bailout, Krugman says it is too little, too late.

“I look at the prices on subprime-backed securities. Even the AAA-rated tranche is selling for barely over 50 cents on the dollar, and the rest is essentially worthless, which amounts to a prediction that you’re going to get really very little on this stuff. Even if every subprime borrower walks away from his house and a lot of money is lost in foreclosure, it’s hard to get numbers that bad,” Krugman said in the Fortune article.

Indeed, the country’s housing crisis and the resulting turmoil in the financial markets have become both monumental and unprecedented. Exactly when the economy will stabilize and return to “normal” is anyone’s guess. As Bette Davis said in the movie, All About Eve, “fasten your seatbelts; it’s going to be a bumpy night.”

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 housing market, which has been in a cool down mode for more than a year, is becoming downright cold.

Across the country, home prices have dropped to record lows. Compared to a year ago in January, single-family home prices in 10 major U.S. cities fell 11.4 percent.

Data released by the S&P/Case-Shiller composite index shows that no city is exempt from the national housing crisis. Las Vegas, Miami and Phoenix reported the biggest drops, with home prices falling by an average of 19 percent.

This is the first time since home price data were first collected in 1987 that both housing indexes have shown double-digit percentage decreases. All 20 cities tracked by the index have seen price drops for five months consecutively. Thirteen of the 20 cities reported their single largest monthly decline in January.

The housing slump spells bad news for the economy. As homeowners watch the equity in their homes vanish into thin air, they are less likely to spend money elsewhere. Â Mortgage delinquencies and foreclosures are increasing daily. Banks, still reeling from the subprime mortgage mess, have stepped back from mortgage lending as a whole.

The problems facing the housing industry are still being felt on Wall Street. When mortgage defaults and delinquencies on subprime mortgages began to skyrocket, it created a host of problems for the securities backed by subprime loans and similar derivative products. For investors, it means they are likely to see even more losses in the months ahead.

In late March, U.S. consumer confidence hit a five-year low, according to the Conference Board index, which gauges consumer spending.

Looking ahead, there appears to be little light at the end of the housing tunnel, as analysts predict that the plunge in home values - the worst since the Great Depression - could get even worse.

Says David Blitzer, chairman of the S&P’s index committee: “Unfortunately, it does not look like early 2008 is making any turnaround in the housing market after the declining year recorded throughout 2007. Home prices continue to fall, decelerate and reach record lows across the nation.”

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.

As the clouds continue to darken over the U.S. economy, the next market to suffer may be commercial mortgage-backed securities.

According to a March 19, 2008, article in the Co-Star Group Real Estate Newsletter, the ongoing turmoil in the financial markets has now made its way to the commercial real estate industry. The CMBX indices, which follow commercial mortgage-backed securities, say the securities lost roughly 20 percent of their value in recent weeks.

Insiders in the commercial real estate industry maintain the market is solid and that they are simply caught between a rock and a hard place. Once the capital markets are straightened out, the commercial real estate market will snap back, they predict.

The longer it takes for that to happen, however, the more likely it is the recession will worsen and commercial fundamentals begin to deteriorate.

According to Marc Thompson, senior vice president of Bank of the West, commercial bank lending fell to $9.2 billion in the third quarter of 2007, down from $37 billion in the second quarter because of the aversion to risk. One thing is for certain: If the commercial mortgage-backed securities market follows the same line of logic seen in the subprime market collapse last year, trouble may very well be on the horizon.

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.