Scott Reckard of the LA Times just wrote an excellent investigative report on due diligence, or the absence of it, in the securitization of subprime mortgages. He interviewed former employees of Clayton Holdings and Bohan Group, companies hired by securities firms to scrutinize subprime loan files on behalf of investors. While the pressure to originate and securitize led to the suppression of loan problems by reviewers, the article also notes that Wall Street investors increasingly relied on higher interest rates and prepayment penalties to substitute for careful mortgage underwriting.
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Monday, March 17, 2008
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Uh, isn't that the point of a market - to substitute mechanisms which work on average for painstaking review?
Posted by: michael webster | Tuesday, March 25, 2008 at 11:13 PM