One thing everyone I’ve spoken to recently believes is that we must have a robust secondary market in order to have enough liquidity in our system to serve borrowers and maintain industry profitability. This cannot be argued. But neither can it be attained until the downturn has made its way through the courts and the dust settles.
Unfortunately, as long as the courts entertain lawsuits from larger investors (not investors like you and I, but some of the nation’s largest companies with money to burn), this will drag out, possibly for years.
When the news broke that Allstate was suing JP Morgan over loans it used to back securities, the investor said that JP Morgan executives new the mortgages were bad, but went on to point out that the securities were rated “triple-A” by the ratings agencies.
At the time the story broke, the lender said it was setting aside an additional $1.5 billion just to cover legal expenses. CEO Jamie Dimon told analysts on a conference call that the “litigation is going to fought almost securitization by securitization.”
Other top lenders, including Bank of America, are also facing litigation over their past securitizations.
Every day we take fighting over these old deals is one more day new investors will avoid mortgage-backed securities. That hurts everyone.
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