has been approached by an individual who participated directly in
the various aspects of what is now broadly known as Fraudclosure.
The below narrative recounts his experience in the due diligence
process of selecting loans for the MBS pipeline. And far more than
just legalese "technicalities" or a broad abrogation of
property rights, as he points out there is a far more palpable issue
for all those who hold Mortgage Backed Securities or other pool
aggregations of mortgage loans: "we have no idea what is
in those packages." This coming from the person who helped
pick, diligence and sort through the various loans…
behind the foreclosure crisis.
Yes, I am choosing
to remain an anonymous coward. I just have been waiting this shoe
to drop for a long time. The last thing I want to do is have to
explain myself and get my ass sued for defamation. Not worth it.
This much I
can tell you. We have no idea what is in those packages. I personally
packaged billions in MBS which have been placed on public shelves.
Those assets were underwritten by Goldman, Morgan or name your investment
I started packaging
loans as early as 2003, at the beginning of the crisis. After working
for a large aggregator in New York, I joined GMAC. Those were good
times. I worked directly with the traders to package assets that
we would buy from our institutional clients and broker channel.
It was the trader’s responsibility to close the deal with the
underwriter. He would then hand the deal to the securitization group
where it was managed by an asset specialist and a securitisation
manager. We take the pool to the ratings agencies, S&P, Fitch,
or Moody`s where we get levels of overcollateralization required
for the waterfall of public tranche offerings.
Then, we worked
with underwriters of the deal to perform due diligence. That is
where this process breaks down. They use sampling to verify the
makeup of the pools. There is a lot of pressure to get the deals
done in a timely manner so they don’t have time to check every
asset. The most I’ve ever checked on a deal is 30%. We’ve
done some pools that came back very different from what the trader
originally told us. I’ll give a personal example and show how
it relates to the foreclosure crisis.
I put together
a large subprime deal where we said that the percentage of Stated
income assets was 10%. Out of a pool of over 500 assets, we ran
our due diligence and pulled a sample of 50 assets, we had over
25% of the assets come back as stated income. Well, we got another
50 assets and still came back with 22% stated. It was obvious to
me and the underwriter that the stated income levels were higher
than originally reported.
How did we
handle this issue? We threw all the stated income assets out of
the deal. In this case we threw out 22 assets and packaged the deal
as 10%. In fact that is how we would typically handle issues where
we had discrepancies. I told my boss on several occasions that it
was a real fishy way of doing things, but as everyone was also doing
it, my coworkers, the guys from Goldman, the agencies, I just kind
of went along with it.