The Mortgage Crisis Act II – Is the Bleeding Over?

The Mortgage Crisis Act II – Is the Bleeding Over?
By Robert Pardes

 

What do you know about "Recourse Exposure".  This risk is embedded into nearly every structured product, especially CDO's, CLN and other mortgage derivatives.  Learn how the next wave of the Credit Crisis is already begining to form.

 

Here's an excerpt...
Several recent trends are likely to accelerate the pace of recourse demands and the realization by financial institutions of sizable related losses. A Federal Court in Massachusetts recently sanctioned a leading institutional trustee for having turned a "blind eye" to the mistakes of the servicer for a securitization in connection with bankruptcy filings. Institutional investors will latch on to the "blind eye" theory with increasing frequency to compel forensic reviews.

Secondly, as virtually all tranches of securities from AAA through unrated have suffered material losses and write downs, there is increasing collaboration among investors to seek redress in the governance provisions of Trust Agreements, which allows investors to exercise certain rights based upon pre-established voting percentages.

Real growth in revenues for many financial institutions is likely to be retarded by recourse exposure for many quarters to come – continuing the pressure on earnings and performance and limiting any short term recovery in shareholder value. 

 

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