Wednesday, April 25, 2007

The Mortgage Tango: Who's the Second Dancer?

You'll see articles which bemoan the "fraud" perpetrated on Wall Street types by people who took out large "no-documentation" mortgage loans and then failed to pay them off.

There is another view, folks.

OK. Stated income loans "were made possible by relaxed underwriting guidelines." Who made up those relaxed underwriting guidelines? At what point, exactly, did Bear Stearns notice this? Is Bear saying that its own underwriting guidelines were mere exercises in counting rosary beads, or that someone else's were? Does that mean Bear manages risk by delegating the formulation of credit policy for billions and billions of securitized loans to some pissant mortgage broker? Does it tell the SEC that? And what's with this "were" business, anyway? Nobody's doing stated income any longer? That is news.

Ladies and gentlemen of the press: we have, actually, established the culpability of borrowers and brokers on the bottom and foreign central banks and other nefarious sources of liquidity on the top. Could we, maybe, spend a minute looking at the middle of the chain? Unless I am sorely mistaken, the Street has been accepting a lot of fees lately for "underwriting" mortgage-backed securities. Perhaps we could ask them about their own "Hail Mary" problem for a change?

Yes, there are crooks at the bottom. But Bear, Stearns (the initials could be portentious, eh?) should not try to claim that they were babes-in-the-woods.

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