Half of recent mortgages are "iffy"

Well, at least from January 2006-June 2007, almost half of U.S. mortgages failed financial institutions' underwriting guidelines. According to a firm they hired to check that out!

So, what happened? They kept underwriting the loans. Moody's, Fitch and S&P deliberately declined to accept this information.

Part of (a Financial Crisis Inquiry Commission hearing held in Sacramento on Sept. 23) focused on the role that Clayton Holdings, a firm that reviews loan files on behalf of investment banks, played in the mortgage securitization process by which one home mortgage after another got packaged up into mortgage-backed securities by Wall Street and sold to investors all over the world. The banks hired Clayton to do some forensics — to examine the mortgages that went into the securities and determine if they complied with some basic level of credit underwriting guidelines and “client risk tolerances,” as well as with state and local laws. If a loan met the underwriting “guidelines,” Clayton would rate the loan “Event 1”; other ratings meant that the loan did not meet the guidelines, with varying degrees of flaws.

According to Vicki Beal, a senior vice president at Clayton who testified at the Sacramento hearing, one of the main services Wall Street paid Clayton for was a detailed examination of the loans that deviate “from seller underwriting guidelines and client tolerances.” ...

Of the 911,039 mortgages Clayton examined for its Wall Street clients ... for the six quarters between January 2006 and June 2007 ... only 54 percent were found to meet the underwriting guidelines. Standards deteriorated over time, with only 47 percent of the mortgages Clayton examined meeting the guidelines by the second quarter of 2007.

So, did Wall Street throw all those mortgages back into the pond as being too risky for securities they were going to sell to clients? Of course not — many were packaged right into their product. ...

The Times’ Gretchen Morgenson reported on that Clayton Holdings had in fact offered to make its data available to the three ratings agencies that rated mortgage-backed securities, but that each rejected Clayton’s offer.

And yet, as Krugman notes, the hacks at the WSJ say we should just accept bankers' words that the recent uncovering of fraud is nothing more than a paperwork issue.

And, the Obama Administration keeps its thumbs up its collective ass, perhaps hoping for campaign contributions. You know, if the GOP weren't up shit creek on being Wall Street shills, they'd have a ready made slogan ....

That instead, the Greens can use in 2012:

Let's foreclose on the White House!