Mortgage-Backed Securities: 1/3 not backed!

On April 3, 2009, R. Glen Ayers spoke at the American Bankruptcy Institute in Washington, D.C. Mr. Ayers is a former bankruptcy judge, now with the law firm Langley & Banack in San Antonio, Texas. He spoke on a subject I covered here on March 4 – not all mortgage backed securities are actually backed by mortgages. The rush to write more mortgages and to issue more bonds meant that mistakes were made in the paperwork.

The Ayers speech is connected to an article he wrote with Judge Samuel L. Bufford, who had the California case I mentioned last month where the mortgage note disappeared after being transferred to Freddie Mac. In the article, “Where’s the Note, Who’s the Holder”, they drop this bombshell: “A lawyer sophisticated in this area has speculated to one of the authors that perhaps a third of the notes ‘securitized’ have been lost or destroyed.” Meaning that 1/3 of the mortgage-backed securities are not backed by mortgages!

This is the junk that Treasury Secretary Geithner wants to finance the hedge funds to purchase. As of the end of 2008, there was $6,838.7 billion worth of government-backed mortgage bonds outstanding. An additional $178 billion were issued in the first two months of 2009.

Scary stuff. No wonder the hedge funds are giving Geithner’s Public-Private Investment Partnership “two thumbs-down.”


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New info: Could be more than 1/2 not backed!

According to an article in the July 9-23 issue of Rolling Stone magazine (not avalable online yet), for a 2006 mortgage-backed security (MBS) issued by Goldman Sachs, "58 percent of the loans included little or no documentation -- no names of the borrowers, no addresses of the homes, just zip codes." If you can find a copy of the article (The Great American Bubble Machine), Taibbi confirms a lot of what I've been writing about Wall Street's involvement in the financial crisis -- and more.

And don't forget: these MBS are what the government is putting our money into with the new toxic asset "Legacy" program. If you read this July 2 article from Bloomberg, which lists the firms who will be buying what the government is selling, you'll notice that Goldman Sachs isn't putting up any money. Now we know why -- there's no "M" in their "BS".