US Mortgage Bond Investors Take Large Hit
Investors in US mortgage securities have been forced to absorb large writedowns in response to a deal between leading financial groups and government agencies over the “robosigning” scandal.
Mortgage bond investors and US lawmakers had feared such an outcome earlier this year, after reports that a deal was near to resolve accusations that banks mistreated homeowners and wrongfully certified legal documents used to evict defaulted borrowers.
The banks – JPMorgan Chase, Bank of America, Wells Fargo, Citigroup and Ally Financial – agreed to forgive billions of dollars worth of distressed borrowers’ mortgage principal in exchange for waivers from potential liability. On Wednesday, BofA said that 60 per cent of the $4.75bn in first-lien mortgage principal it has thus far agreed to forgive would come from non-government guaranteed loans that were packaged into bonds and sold to investors. Of JPMorgan’s $3bn in forgiven mortgage debt, slightly less than half has come from investors’ holdings, a person familiar with the matter said.
Full report here…