Reaching the Bottom of the Barrel:
How the Securitization of Subprime
Mortgages Ultimately BackŽred
Peter Hawkes
© 2008 Thomson/West. Originally appeared in the Spring 2008 issue of Real Estate Finance Journal. For more
information on that publication, please visit http://west.thomson.com. Reprinted with permission.
In the last decade, Wall Street used the process of securitization to revolutionize
the Žnancing of home mortgages, making credit available to millions of borrowers
with less- than-stellar credit. But the failure to properly assess the credit risk
associated with these loans led to well over $100 billion in losses at Wall Street
Žrms. Who will be held responsible?
The subprime mortgage crisis is, in large part, a consequence of an untested faith in Žnancial wizardry. The
premise is a simple one, familiar to anyone with a stock
portfolio: if you diversify your holdings, you face less
exposure from any single bad investment. You can
enjoy greater returns with less risk. The securitization
of subprime mortgage loans was based on this simple
principle. Each individual subprime loan presented a
large risk of default. But pooled into large, diverse
groups, with the risk spread over a large number of
investors, exposure to the credit risk associated with
any particular loan was minimized. The use of credit
enhancements, such as senior-subordinate structures
and credit default swaps, and contractual terms, such
as recourse provisions, further reduced the risk associated with these loans, enabling extremely risky
subprime loans to be converted into AAA-rated
securities.
Then, somehow, the whole ediŽce crumbled. Default rates on subprime mortgages exceeded the expectations of almost everyone in the Žnancial community.
Peter Hawkes is an attorney in the Portland, OR, oce of Lane Powell
PC. His area of practice is commercial litigation, with a particular focus
on securities litigation. He can be reached at
hawkesp@lanepowell.com.
Even ‘‘safe,’’ highly-rated mortgage-backed securities
were decimated in value. As losses mount all over Wall
Street, investors are demanding to know what went
wrong, and are seeking to hold issuers responsible in
court. Issuers are turning on the lenders who sold them
the loans they securitized, claiming fraud and contractual breaches. State and federal government ocials
have also opened both civil and criminal investigations
of the securitization of subprime loans.
The subprime mortgage crisis demonstrates how
seemingly sound Žnancial principles, such as those
underlying the securitization of home mortgages, can
fail when they themselves distort the very markets in
which they operate. The drastic increase in subprime
lending was partially a result of the process of securitization, which made vast amounts of credit available
while reducing lenders’ incentive to carefully screen
their borrowers. The excellent performance of
mortgage-backed securities (as well as the perceived
safety of these investments) stoked demand for more
mortgage-backed securities—which required everriskier subprime mortgages, as the selection process
repeatedly cherry-picked from the pool of available
borrowers. This process worked just Žne as long as
housing prices continued to appreciate at astonishing
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Reaching the Bottom of the Barrel: How the Securitization of Subprime Mortgages Ultimately BackŽred
rates. Subprime borrowers were able to reŽnance or
sell their homes rather than default. But when the real
estate market reached its peak and began to decline,
subprime borrowers found themselves locked into
mortgages they could no longer aord. An unprecedented wave of defaults ensued, devastating the value
of securities backed by these loans.
How did the risk models for mortgage-backed securities fail so spectacularly? How could so many brilliant minds have gotten things so wrong? And who will
be held responsible as the current wave of litigation
runs its course?
The Mortgage Securitization Process
The securitization of home mortgages is a process
by which groups of mortgages are pooled together and
used to secure debt instruments that are purchased by
investors. The investors in these mortgage-backed securities (‘‘MBS’’) are paid from the cash ows generated by payments on the mortgages in the pool.
The securitization model begins, of course, with the
lender-borrower transaction. Sometimes this transaction is direct, but most subprime mortgages are mediated by a mortgage broker, who Žnds potential borrowers, assesses their credit risk, and submits loan
applications on their behalf.
Rather than retaining and servicing the loan itself,
the lender then sells the mortgage to a special purpose
vehicle (‘‘SPV’’), usually in the form of a trust, where
it is pooled with other mortgages. This SPV, which is
usually set up by the lender, then sells the pool of mortgages to a second, independent SPV, usually organized
by an investment bank. It is the second SPV that
becomes the issuer of the MBS. An investment bank
then underwrites the securities, sometimes employing
a placement agent to Žnd suitable investors, and sells
the MBS to other banks and Žnancial institutions, as
well as institutional (and, in some cases, individual)
investors.
This structure has a number of advantages. Because
the individual mortgages are pooled together, investors’ exposure to any particular bad loan is reduced;
that is, investors get the beneŽt of diversiŽcation. The
SPV issuer is bankruptcy-remote, meaning that the
mortgages it holds cannot be reached in the event that
the original lender goes bankrupt, which further contributes to the safety of the investment. The issuer is
typically tax-exempt as well. And because the issuer is
independent of the loan originator, the issuer should
qualify as a ‘‘holder in due course,’’ meaning that
many contract claims that a borrower might have
against the originator are extinguished, thereby reducing litigation risk.
Most MBS utilize what is known as a seniorsubordinate structure. This structure uses payment
‘‘waterfalls’’ to allow dierent investors to take on
dierent levels of risk, known as ‘‘tranches.’’ Inves56
tors in the most senior tranche are paid Žrst; then the
mezzanine tranches are paid; and, Žnally, the most
junior positions take what it left. The more subordinate
an investor is in the structure, the more likely it is that
cash will run out before he or she is paid. Hence, more
junior investors generally receive a higher rate of
return. Ratings agencies assess the risk of each tranche
separately and assign it a rating. The most senior
tranches usually have the highest possible rating of
AAA (using the Standard & Poor’s rating system).
Mezzanine tranches typically are assigned ratings of
AA or A, and junior tranches bear ratings of BBB or
below, with the lowest tranche, also known as the
‘‘equity piece’’ (since it retains all of the residual if all
of the more senior tranches are paid o) or ‘‘Žrst loss
position’’ (for obvious reasons) are usually unrated.
The equity piece is frequently retained by the original
lender, in theory providing some incentive for the
lender to carefully underwrite its loans. This structure
enables investment banks to turn pools of relatively
risky assets, such as subprime mortgages, into investment grade securities.
The ratings of MBS also frequently receive a boost
from what are known as ‘‘credit enhancements.’’ The
senior-subordinate structure is itself a type of internal
credit enhancement. Other internal credit enhancements include over-collateralization, in which the total
mortgage loans in the pool exceeds the total liability to
investors, and an excess spread account, in which cash
that is set aside after investors and expenses are paid
can be used to oset future shortfalls. External credit
enhancements include bond insurance provided by
monoline insurance companies or credit default swaps.
A credit default swap is a security derivative that functions much like an insurance policy. For a price, another party agrees to bear the credit risk of the loan
pool above a certain level, allowing MBS investors to
hedge against catastrophic losses.
Additionally, the agreements between MBS issuers
and lenders often contain provisions that shift some of
the credit risk back onto the lender. For example, deal
provisions may require a lender to buy back nonperforming loans under certain conditions, or replace
defaulting loans with performing ones. Some deals
require lenders to retain servicing rights as an incentive to carefully screen borrowers, since servicing costs
go up when loans go into default. But many deals actually require lenders to transfer servicing rights to a
large, national servicing company in order to take
advantage of economies of scale and expertise.
In many cases, issuance of MBS is not the end of
the process. Many investment banks create pools of
MBS and incorporate them into Žnancial structures
known as collateralized debt obligations (‘‘CDOs’’).
CDOs also utilize a senior-subordinate structure to mitigate credit risk for investors in the upper tranches.
Thus, investment banks could take low-rated or unrated
junior pieces of MBS structures and, by re-tranching,
create new AAA-rated securities. In the last several
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years, interests in CDOs became a darling asset of
investment banks and hedge funds. Investment banks
even created CDOs of CDOs—a structure known as a
‘‘CDO-squared.’’
The Real Estate ‘‘Pyramid Scheme’’
The increased prevalence of the securitization of
home mortgages both fueled, and was fueled by, the
long housing boom that began in the 1990s. The early
part of this period saw historically low interest rates in
the face of rapid economic expansion. The spectacular
rise in stock prices, driven by the ‘‘dot-com’’ frenzy,
contributed to increased income on Main Street as well
as Wall Street, as many people invested (and proŽted)
in the stock market for the Žrst time. This increase in
wealth and income, combined with interest rates that
were relatively low considering the rate of economic
expansion, led many people to buy new homes. After
the stock market bubble burst in 2001 and the economy
entered a mild recession, the Federal Reserve slashed
interest rates even further, cutting the federal funds
rate from a high of 6.50 percent in early 2001 to as low
as 1.00 percent by mid-2003. This move eectively
lowered mortgage rates to historic lows as well. At the
same time, investors stung by their investments in
ephemeral stocks increasingly saw real estate as a
tangible, safe investment, particularly as real estate
prices continued to climb while the rest of the economy
stagnated. As people plowed more of their wealth into
their homes (and, increasingly, speculative residential
investments), real estate price appreciation accelerated.
Homeowners repeatedly ‘‘traded up,’’ using the equity
gains from the appreciation of their current home
values to Žnance purchases of bigger, better homes.
New home construction took o in response to this
demand, increasing the overall housing supply. But in
order for this process to continue, the market required
a constant supply of new homeowners at the bottom of
the market to purchase the homes that earlier homeowners were leaving behind. Thus, the real estate market began to resemble a pyramid scheme: in order for
earlier entrants to make money, there had to be new
entrants investing new money. These new buyers
frequently had spotty credit history, low income, or
other indicia of credit risk—that is, they were considered ‘‘subprime’’ mortgage borrowers.
Increased demand for housing carried with it increased demand for credit, and securitization was the
vehicle that made that credit available. Traditionally,
mortgage lenders retained and serviced their own
loans. This eectively limited the amount of credit
available to Žnance home purchases to that which the
lender alone was able to provide. Governmentsponsored enterprises (‘‘GSEs’’) such as the Federal
National Mortgage Association (‘‘Fannie Mae’’) and
the Federal Home Loan Mortgage Corporation (‘‘Freddie Mac’’) make additional credit available by purchasing mortgages from lenders, pooling them, and selling
interests in the pools to investors—that is, by securitizing home mortgages. But Fannie Mae and Freddie Mac
have strict guidelines for the mortgages they will
purchase, and deal for the most part only with prime
mortgages with certain speciŽcations. Thus, the GSEs
could not directly increase credit liquidity for subprime
loans. But in the last decade, Wall Street investment
banks increasingly Žlled the gap, purchasing subprime
loans and other loans that failed to conform to GSE
guidelines (such as so-called ‘‘Alt-A’’ loans and
‘‘Jumbo’’ loans) from lenders and packaging them into
‘‘private-label’’ MBS. This process drastically increased the credit available to subprime borrowers. By
2006, $1.9 trillion of the $2.5 trillion in total mortgage
originations that year were securitized in MBS—about
25 percent of which were backed by subprime loans.1
Three-quarters of the subprime mortgages originated
in 2006 were securitized.2
As the housing boom continued, everyone made
money. Homeowners enjoyed increased equity as their
home values increased. Mortgage lenders proŽted from
origination fees for new mortgages, sales of those
mortgages to Žnancial institutions, and sales of servicing rights to large servicing companies. Investment
banks earned fees for underwriting MBS and CDOs.
And investors in MBS and CDOs saw consistent cash
ows from their investments, as loans rarely went bad
in an appreciating housing market. Home buyers and
mortgage lenders continued to demand credit, and
investment banks and their investors were more than
happy to provide it in order to feed their own demand
for MBS.
The problem, of course, was that there was a Žnite
supply of creditworthy borrowers. As most of the available prime borrowers had already entered the market,
lenders had to look to subprime borrowers to maintain
loan volume. New subprime loan originations grew
from $35 billion, or Žve percent of the overall mortgage
market, in 19943 to over $600 billion,4 or a whopping
20 percent of the overall mortgage market,5 in 2006.
There are about $1.3 trillion in subprime loans currently outstanding.6
Because subprime borrowers present signiŽcantly
higher credit risk than prime borrowers, they typically
must pay much higher interest rates (on average, about
200 basis points higher than prime borrowers)7 and are
frequently saddled with more onerous loan terms, such
as prepayment penalties, acceleration clauses and
higher origination fees. To enable subprime borrowers
to aord these loans, lenders increasingly utilized
creative mortgage products that had low initial monthly
payments, with higher payments kicking in a few years
later. These products included hybrid adjustable rate
mortgages (‘‘ARMs’’) that had a low initial Žxed interest rate, called a ‘‘teaser’’ rate, that would reset to a
higher, oating rate after an introductory period. Other
variations included interest-only mortgages, which
required borrowers to pay only the accrued interest on
the loan during the introductory period; and payment-
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option mortgages, which allowed borrowers to choose
to make a full payment, an interest-only payment, or
even a lower payment that would result in negative
amortization. Of course, once higher payments kicked
in, these borrowers would no longer be able to aord
the loans. But lenders and MBS investors assumed that,
as long as real estate prices continued to rapidly appreciate and interest rates remained relatively low,
these borrowers could either reŽnance or sell their
homes before the higher payments came due.
As the relatively more-creditworthy subprime borrowers entered the market, lenders had to further relax
their underwriting requirements to keep loan volume
at the necessary level. Increasingly, lenders would
provide mortgages with little or no proof by the borrower of an ability to pay, requiring only the borrower’s stated income or assets. The ‘‘no-doc’’ or
‘‘low-doc’’ loans encouraged fraud on the part of loan
applicants, who believed they could ip their houses
for a proŽt in the booming real estate market. Lenders
also provided more loans with little or no down payment, using multiple mortgages and home equity lines
of credit to avoid mortgage insurance requirements.
For a while, the pyramid scheme worked. But interest rates began to slowly creep up again in late 2004.
By 2006, the real estate market began to run out of
available new buyers. Home values stagnated and then
began to fall. Subprime borrowers found themselves
trapped in mortgages they could no longer aord, as
their low introductory payments ended and they were
unable to sell (due to poor market conditions) or
reŽnance (due to higher interest rates). Delinquency
rates on subprime ARMs jumped to 16 percent in
August 2006, roughly triple the rate in mid-2005,8 and
had increased to 21 percent by January 2008.9 This unprecedented wave of defaults negated many of the assumptions on which the ratings of MBS depended,
leading to unexpected losses even in the upper
tranches. These losses were particularly devastating to
investors in CDOs, many of which had high concentrations of junior-tranche MBS. Many of Wall Street’s
premier investment banks announced multi-billion dollar write-downs on investments linked to mortgage
loans, with Citigroup, Inc. ($24.1 billion), Merrill
Lynch & Co., Inc. ($22.5 billion), UBS AG ($18.7 billion), and Morgan Stanley ($10.3 billion) taking the
largest hits.10 One Bear Stearns hedge fund lost almost
19 percent of its value in April 2007 alone as a result
of its exposure to CDOs backed by MBS.11
What Went Wrong?
Securitization contributed to the subprime mortgage
collapse by providing the credit necessary to greatly
expand the availability of subprime loans—the fuel for
the Žre, as it were. But the Žnancial industry might
have averted the subprime mortgage crisis, or at least
reduced its impact, if it had addressed certain structural
aws in the securitization process itself.
58
The most glaring problem with the securitization
process is the perverse incentives it creates for
subprime mortgage lenders. Because lenders sell the
loans to MBS issuers rather than retaining them on
their balance sheets, they have little incentive to rigorously screen loan applicants. In fact, to the extent
mortgage lenders retain any subprime loans on their
own books, they have every incentive to cherry-pick
the most desirable, least risky loans and shuže o the
‘‘lemons’’ to be securitized. Some issuers attempt to
align lenders’ interests with their own by selling the
lender the Žrst-loss, residual position in the MBS
structure. But many lenders simply resell their residuals to issuers of CDOs, moving the entire credit risk o
their books.12 Recourse and collateral substitution
clauses, which require lenders to buy back or replace
nonperforming loans, theoretically shift some credit
risk back to lenders. But in practice, many MBS issuers have had diculty enforcing these provisions.
Lightly capitalized lenders can simply declare bankruptcy rather than buy back bad loans, as Ownit Mortgage Solutions did when JP Morgan Chase and Merrill
Lynch sought to enforce repurchase provisions in
November 2006.13 Finally, many issuers allowed, or
even required, lenders to sell their servicing rights to
third parties, removing the last remaining incentive to
engage in rigorous underwriting.
But issuers cannot put all the blame on lenders, for
in many cases they failed to engage in rigorous due
diligence with respect to the subprime loans they were
purchasing. Due to the vast numbers of individual
loans involved in securitization pools, loan-level due
diligence is neither practical nor cost-ecient. Most issuers review the actual documentation of only a small
sample of the loans that they purchase, relying more
on representations and warranties of the lender regarding the quality of the loans in the pool and the credit
enhancements in the securitization structure itself to
protect against losses. While many issuers use automated compliance systems to screen the loans they
purchase for legal compliance, such systems reveal
little about the creditworthiness of borrowers. Issuers
of CDOs have even less information, since they are another level removed from the original loan transactions.
Rating agencies, such as Standard & Poor’s and
Moody’s, generally rate MBS and CLO tranches based
on summary information provided to them by issuers
and Žnancial models based on historical data regarding
the performance of the type of loans involved. Since
issuers conduct only cursory due diligence in many
cases, the summaries they provide to rating agencies
are often incomplete and approximate. Most issuers do
not turn over their full due diligence Žles to rating
agencies, and the agencies do not customarily ask for
them. Recently, Raymond W. McDaniel, Jr., the chief
executive of Moody’s, went so far as to suggest that
his agency had been misled by many MBS issuers.14
While working with incomplete (and sometimes inaccurate) data, rating agencies also had to contend with
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the lack of historical precedent of widespread subprime
lending, which introduced signiŽcant uncertainty into
their risk models. As McDaniel recently conceded, ‘‘In
hindsight, it is pretty clear that there was a failure in
some key assumptions that were supporting our analytics and our models.’’15
In retrospect, while the Žnancial principles underlying the securitization of subprime mortgages appeared
sound, serious structural problems should have been
addressed. Issuers should have insisted that lenders
retain the Žrst loss position and servicing rights, and
should have steered away from doing business with
lightly capitalized lenders who would be unable to
meet their contractual obligations to repurchase or
replace nonperforming loans. Issuers also should have
conducted more rigorous due diligence and provided
more complete and accurate information to rating
agencies. Rating agencies should have insisted on more
information from issuers before rating loans and should
have developed better risk models. These steps might
have prevented the downturn in the real estate market
from turning into the global Žnancial crisis that it has
become.
What’s Next: Lawsuits and Investigations
Predictably, the collapse of the subprime mortgage
securitization market has engendered numerous lawsuits as well as government inquiries. Stock market
investors are suing investment banks and bond insurers due to the huge losses they have sustained in their
exposure to MBS and CDOs; investors in MBS and
CDOs are suing issuers of those securities, claiming
they were misled regarding the risk proŽle of the securities and the quality of the underlying mortgages; and
MBS issuers are suing subprime lenders, claiming that
they fraudulently sold bad loans and breached their
repurchase obligations. The Securities and Exchange
Commission has begun dozens of investigations of
players in the subprime mortgage securitization market, and state ocials, most notably the Attorney General of the State of New York, have launched their own
investigations. The Federal Bureau of Investigation
has even begun a criminal inquiry into alleged abuses
in the subprime mortgage securitization market.
Numerous securities class action complaints have
been Žled against virtually every major investment
bank and bond insurance company seeking to recover
for losses those Žnancial institutions have sustained as
a result of their exposure to subprime MBS and CDOs.
These lawsuits typically allege that the Žnancial
institutions failed to disclose their level of exposure to
these securities and the risks associated with them,
and/or that the Žrms withheld information regarding
the massive losses they had sustained until well after
those losses became apparent. Since October 2007, investor classes have Žled such claims against the investment banks Merrill Lynch, Citigroup and UBS, and
against the bond insurers MBIA, Inc., Ambac Financial
Group, Inc., and Security Capital Assurance, Ltd.16
Whether meritorious or not, these lawsuits will likely
result in substantial settlements in many instances, further compounding the losses that these Žnancial institutions have sustained.
Having directly sustained massive losses on their
investments, MBS and CDO investors have also begun
to seek legal redress from the issuers and underwriters
of those securities. For example, in April 2007, Bankers Life Insurance Company Žled suit against Credit
Suisse in connection with MBS that it purchased in
2004. Bankers Life alleges that Credit Suisse overstated the degree to which insurance would cover
potential losses, accepted low-quality loans, and
covered up delinquencies by homeowners by advancing payments on their behalf.17 But MBS and CDO
investors face signiŽcant obstacles to recovery through
the courts. Most MBS and CDOs are sold only to
highly sophisticated (and frequently institutional)
investors. Disclosure obligations, particularly in nonpublic deals, such as Rule 144A oerings, are greatly
circumscribed. Absent evidence of intentional fraud or
breach of speciŽc contractual provisions, investors are
unlikely to prevail against MBS and CDO issuers and
underwriters. Many investors are further restrained by
the fact that MBS and CDOs are issued and underwritten by major investment banks, with whom these large
investors must deal on a daily basis.
Continuing down the chain of entities involved in
the subprime mortgage securitization market, issuers
of MBS have Žled numerous lawsuits against subprime
lenders, claiming that those lenders fraudulently sold
the issuers bad loans or failed to meet their contractual
obligations to repurchase or replace nonperforming
loans. Examples include lawsuits by DLJ Mortgage
Capital, Inc. (a division of Credit Suisse) against several subprime lenders, including Sunset Direct Lending, NetBank and InŽnity Home Mortgages, as well as
UBS Real Estate Securities’ lawsuit against New
Century Financial.18 However, given the dire Žnancial
straits that many of these subprime lenders are in, issuers may have diculty recovering much of their losses
in these lawsuits.
Regulators at the state and federal level have also
begun investigating possible fraud in the subprime
mortgage securitization market. The Securities and
Exchange Commission has opened around three dozen
civil investigations in connection with the subprime
mortgage crisis, including investigations of Wall Street
Žrms such as UBS, Morgan Stanley, Merrill Lynch and
Bear Stearns. Those SEC inquiries are focused on possible inconsistencies in the Žrms’ valuation of MBS
held on their own books versus those held by customers such as hedge funds, the timeliness of the Žrms’
disclosure of their losses, and the accounting propriety
of using o-balance sheet entities to hold MBS
investments.19 At the state level, New York Attorney
General Andrew Cuomo is investigating whether
investment banks that issued MBS withheld informa-
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tion from investors and rating agencies regarding the
extent to which those securities were backed by socalled ‘‘exception’’ loans that failed to meet even
reduced underwriting standards.20 The FBI recently
opened criminal inquiries into 14 companies involved
in the subprime mortgage market, including Wall
Street banks involved in securitizing those loans. The
FBI has said that it is investigating potential accounting fraud, insider trading and other violations.21 These
inquiries may well result in civil or criminal charges
against Žnancial institutions involved in the subprime
securitization market.
Conclusion
The Žnancial innovations that enabled Wall Street
to securitize subprime mortgages led to a tremendous
increase in the credit available to these relatively risky
borrowers. But players at all levels of the securitization process—lenders, issuers and rating agencies—
failed to ensure the maintenance of reasonable underwriting standards, leading to a dangerous—and
undetected—increase in credit risk in the MBS market.
When the real estate boom ended, this credit risk could
no longer be swept under the rug, and massive losses
followed. The ensuing litigation and government inquiries will determine who ultimately bears the cost of
these failures.
1
Faten Sabry and Thomas Schopocher, The Subprime
Meltdown: A Primer, in The Subprime Mortgage Meltdown:
Who, What, Where and Why . . .Investigations and Litigation 89, 94 (Practising Law Institute Corporate Law and
Practice Course Handbook Series, 2007).
2
Yuliya Demyanyk and Otto van Hemert, Understanding
the Subprime Mortgage Crisis (December 10, 2007), available at SSRN: http://ssrn.com/abstract=1020396.
3
Jay MacDonald, Watch Out for Bad-Loan Signals (June
15, 2004), available at http://www.bankrate.com/brm/news/
mortgages/20040615a2.asp; Heather M. Tashman, The
Subprime Lending Industry: An Industry in Crisis, 124 Banking L.J. 407 (May 2007).
4
Sabry and Schopocher, supra note 1, at 91.
5
Veena Trehan, The Mortgage Market: What Happened?
60
(Apr. 26, 2007), available at http://www.npr.org/templates/
story/story.php?storyId=12561184.
6
Sabry and Schopocher, supra note 1, at 91.
7
Sabry and Schopocher, supra note 1, at 92.
8
Ben S. Bernanke, Speech at the Economic Club of New
York (October 15, 2007), available at http://
www.federalreserve.gov/newsevents/speech/
bernanke20071015a.htm.
9
Ben S. Bernanke, Speech at the Economic Club of New
York (January 10, 2008), available at http://
www.federalreserve.gov/newsevents/speech/
bernanke20080110a.htm.
10
See Chart of Write-Downs on the Value of Loans, MBS
and CDOs, available at http://en.wikipedia.org/wiki/
2007subprimemortgageŽnancialcrisis (last visited
January 31, 2008).
11
Matthew Goldstein, Bear Stearns’ Subprime Bath,
BusinessWeek, June 12, 2007, available at http://
www.businessweek.com/bwdaily/dnash/content/jun2007/
db20070612748264.htm?campaignid=rsstopStories.
12
Kathleen C. Engel and Patricia A. McCoy, Turning a
Blind Eye: Wall Street Finance of Predatory Lending, 75
Fordham L. Rev. 2039, 2066-68 (2007).
13
Robert S. Friedman and Eric R. Wilson, The Legal
Fallout from the Subprime Mortgage Crisis, 124 Banking
L.J. 420 (May 2007).
14
Floyd Norris, Moody’s Ocial Concedes Failures in
Some Ratings, N.Y. Times, Jan. 26, 2008.
15
Id.
16
See Index of Filings at Stanford Securities Class Action Clearinghouse, at http://securities.stanford.edu/
companies.html.
17
Bankers Life Ins. Co. v. Credit Suisse First Boston
Corp., Case No. 8:2007cv00690 (M.D. Fla.), Žled April 27,
2007.
18
Sabry and Schopocher, supra note 1, at 103.
19
Susan Pulliam and Kara Scannell, Pricing Probes on
Wall Street Gather Steam, Wall Street Journal, December
21, 2007, at C1.
20
Jenny Anderson and Vikas Bajaj, Inquiry Focuses on
Withholding of Data on Loans, N.Y. Times, January 12,
2008.
21
Vikas Bajaj, F.B.I. Opens Subprime Inquiry, N.Y.
Times, January 30, 2008.
THE REAL ESTATE FINANCE JOURNAL/SPRING 2008
@DOMINO/VENUS/PAMPHLET02/ATTORNEY/REFJ/PHAWKES
SESS: 1
COMP: 04/11/08
PG. POS: 6