On behalf of Goldman Sachs, we would like to inform you that a recent study of their mortgage backed securities showed that over 1 in 10 of the home mortgages they contain did not meet current underwriting standards. This ratio has been increasing each year for the past few years - and we wanted you to be aware of this trend before you made any further investments.Okay, sorry. I just can't continue writing that without bursting into hysterical laughter.
We have contacted the originators of these loans and impressed upon them that while we reserve the right to include them in our securities, we will not pay full price for them. The price savings on securities containing these loans will be passed along to you if you decide to invest in ---
By now, the news is out that while investment banks knew full well that their MBS pools had loans that didn't pass underwriting - and that the percentage of those loans was increasing.
Thanks to Gretchen Morgenson over at the NYT, we now know that the firm who studied these loans tried to provide the information to the ratings agencies - who weren't interested.
So the banks who paid for the study learned that their MBS pools were getting uglier.
What did they do? They leaned on their loan suppliers to get a discount on ugly loans - continued to charge full fare to their investors - and kept the data to themselves.
Nice.
Felix seems to think prosecutions are nigh. Let's hope so.
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