Sub-Prime Mortgage Meltdown, Chickens Coming Home to Roost?

The New York Attorney General is looking at the ratings agencies whose input allowed the sub-prime mortgage market to flourish.

As I have blogged previously, the ratings agencies effectively assisted the selling of securities backed by sub-prime mortgages that were junk, or toxic, as they say on Wall Street.

Without the ratings, there is no market for the securities. So, what did the ratings agencies know, and when did they know it, as the old question goes.

The N. Y. Times article linked to above explains how “due diligence” wilted in the face of greed and easy money.

Thousands, tens of thousands, of mortgages were bundled together, as collateral for bonds or other securities.  Obviously, the soundness of the securities is based on the soundness of the underlying mortgages.

The article states that, in the old days, up to 30% of the mortgages were investigated by third party contractors, at a cost of about $350.

Somehow, that declined to 5% or less.  Gee, could it have been the savings of the $350, times the thousands of mortgages?

Yes, but, why did the ratings hold up as the due diligence declined?

That is one of the many questions that I hope get answered as the slow motion train wreck of the unraveling of the sub-prime crisis continues.

Related posts:

1. Investors Still Off the Hook for Sub-Prime Crisis, Poll Says
2. Countrywide Under Scrutiny
3. Foreclosure Crisis: Civil Rights Complaint Filed Over Subprime Loans