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Credit risk management

My Changing View on Mortgage Fraud

Since the start of the mortgage crisis, I’ve maintained my position that everyone who participated in the market was in some way guilty of bringing it down.  Originators made fraudulent loans; investors bought pools they knew were too risky; diligence firms didn’t disclose what they knew; rating agencies didn’t understand the collateral; issuers were willing to securitize anything; and borrowers lied and cheated to get a loan for houses they couldn’t afford.

I’m not known for sugar-coating.

Acts of Greater Courage

Shawn Gravelin, a manager in Allonhill’s credit risk management group, has guest written this blog post.  He and other guest writers will appear in the Allonhill blog from time to time.  His post appears below.

Acts of Greater Courage
By Shawn Gravelin

American Securitization Forum’s New RMBS Rep and Warrant Guidelines

The American Securitization Forum’s Project Restart team released new guidelines for RMBS reps and warranties on December 15. These guidelines are perfectly in line with what the industry needs to adopt.

The suggested reps and warranties address fraud on a level never heard of before. The subordinate investor was always known as the “fraud investor,” and a specific fraud rep was a rare thing.


If they weren’t the root cause of the subprime mortgage crisis, NINJA loans certainly fueled the flames.

NINJAs are No Income, No Job, no Asset loans. As the names imply, these loans were given to people based on income they claimed to make with no requirement that borrowers back up their assertions with pay stubs or tax returns. A credit score was often enough documentation to get a borrower qualified.

Lying to get a Loan

For about a year, the U.S. government has given qualified first-time homebuyers an $8,000 tax credit. The program ends at the end of November, and lawmakers are considering whether to extend it.


There's a new term being kicked around: "overhang," and it refers to the extremely large pipeline of foreclosed properties that's going to hit the market sometime. You've heard of taking a sip from a firehose. Now, picture standing in front of that hose, and its end has been clamped shut by foreclosure moratoriums, courts log-jammed with more foreclosures than they can process, and modifications and workouts that bought people time, but in many cases won't keep them from saving their homes from foreclosure.

Not Necessarily Gold In Them Thar' Hills (Could Be Gold Dust)

Ostriches Don't Make Good Witnesses