The mortgage put-back mess is getting more serious. Yesterday, we learned that several major investors demanded that Bank of America buyback mortgage bonds due to its shoddy servicing and process failures. If the bank refuses, the next stop is likely a court. And other banks might soon also be targets of investors. Wall Street is beginning to notice as the securitization market is beginning to seize. Again. Will Washington allow another crisis?
CNBC's NetNet has been on top of this fiasco. Lori Ann LaRocco provides a great interview with portfolio manager David Ellison on the problem. He says that the securitization market is beginning to freeze. And that includes loans other than just mortgages, like those for cars:
There are two parts to this. If you are originating a loan that's going into securitization, that system I think been slowed down dramatically because the banks will need additional stuff and make sure it has to be done right. Non-securitized loans have not been impacted.
So the contagion here is real. Banks, issues, and investors are all more concerned with the securitization process in general. And since so many loans these days depends on the asset-backed market, this will almost certainly have a significant affect on lending.