Bloomberg reported that the FDIC (Federal Deposit Insurance Crop) has filed suits in New York federal court suing JPMorgan Chase & Co. (JPM), Citigroup Inc., Bank of America Securities and Deutsche Bank AG over the sale of some MBS’s (mortgage-backed securities). The FDIC is acting as receiver for two failed banks that allegedly lost a claimed $77 million on securities backed by residential mortgages. The FDIC alleges the defendants misled the investor banks in the registration statements for the securities.
MBS’s are an asset-backed security that represents cash flow from various mortgage loans. These loans are packaged together and sold at market. MBS’s are made up of conventional loans (those backed by Freddie and Fannie) and non-conventional loans. I thought this would be a good opportunity to review what non-conventional loans are.
Non-conventional loans are a broad term describing loans that do not take the traditional form; in short they aren’t loans that would be accepted by either Fannie or Freddie. Non-conventional financing includes loans such as Interest Only Mortgages (IO), Option Adjustable Rate Mortgages (Option ARM’s), Subprime Mortgages and AltA Mortgages. Let’s take a look at each one… Continue Reading
