Archive for November 22nd, 2010

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Who Owns Blue’s Mortgage? Nobody Knows and BoA is Toasted

November 22, 2010

When mortgages are “securitized” by the banks that originate them (“sponsors”), such as Bank of America — whom we’re slowly learning, this weekend, due to developments in a New Jersey bankruptcy hearing last week, may have actually and completely fallen into the insolvency abyss — they’re subject to a “pooling and servicing agreement.” In lay-speak, these “pools” and/or “bundles of mortgages,” serve as the basis for what is known as “mortgage-backed securities,” or more correctly, “mortgage-backed securitizations” (i.e.: “MBS,” and/or “RMBS,” which are the initials for “residential mortgage-backed securitizations”). These MBS/RMBS are then sold off by special purpose vehicles/special purpose entities (“SPE’s,” “SPV’s”), licensed bond traders/trading firms, and investment trusts (entities that actually create the mortgage-backed securities and then sell them to others) to investors. (Diarist’s Note: This is the “Cliff Notes” version, and technically speaking, it’s not 100% accurate, since it’s considerably more complex than this.)

Even simpler – BoA sold phoney securtities and the buyers are due thier money back – which BoA has lost.