A letter released earlier this week from several huge investors demanding that banks take back soured mortgage bonds certainly worried Wall Street. These investors say that Bank of America (and probably others) failed to live up to their end of the deal due to poor servicing. Indeed, some dire predictions insist the scandal could cost banks billions of dollars.
But to every market reaction there is an opposing reaction from skeptics. One such cynic is Naked Captialism's Yves Smith. She provides some a compelling argument that this letter might not be such of a big deal after all. Here's one reason why, which quotes a source who knows bond insurer litigation:
The bond insurers currently have access to the mortgage loan data and they have not been able to prove widespread fraud (or even widespread breaches), so I am skeptical that there is really a goldmine here for investors. What he is describing is a fishing expedition. There may have been a case or two of a loan reported to be 70% LTV but it really was 100% and that would be material, but I am fairly confident that isn't widespread.
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