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Mortgages: Strategic Defaults Are On the Rise The first wave of U.S. mortgage defaults was spurred by lenders who made bad loans and borrowers who wound up with larger monthly payments than they could ever hope to manage. Lately, something altogether...
Mortgage rates inch above 5 percent McLEAN, Va. – The average fixed-rate for a 30-year mortgage climbed above 5 percent for the first time in two months, leading to a decline in mortgage applications. The average fixed rate on a 30-year...
Mortgage foreclosures still swamping federal efforts... WASHINGTON - Banks and other lenders are still foreclosing on Americans' homes at a rate that's outpacing the Obama administration's main effort to stem the crisis. In fact, while the Treasury Department's...
Mortgage demand near six-month low as rates jump NEW YORK (Reuters) - Demand for U.S. mortgages held last week near six-month lows as the highest long-term borrowing costs since August stifled refinancing, a Mortgage Bankers Association survey showed...
Mortgage delinquencies, foreclosures break records WASHINGTON – The number of homeowners who missed at least one mortgage payment surged to a record in the first quarter of the year, a sign that the foreclosure crisis is far from over. More than 10...
The first wave of U.S. mortgage defaults was spurred by lenders who made bad loans and borrowers who wound up with larger monthly payments than they could ever hope to manage. Lately, something altogether different has been making an increasing contribution to soured debt: Americans choosing to stop making mortgage payments they actually can afford.
“Strategic” defaults accounted for at least 12 percent of all defaults in February, up from about 4 percent in mid-2007, according to a recent Morgan Stanley (NYSE:MS – News) report. Analysts led by Vishwanath Tirupattur classified a default as strategic when a homeowner who hadn’t previously been delinquent made an on-time mortgage payment one month; skipped payments for the next three months; and stayed current on other consumer debt of $10,000 or more.
Housing analysts say strategic defaults mainly occur when a home’s value has dropped below the balance remaining on the mortgage. A homeowner in that position may decide that continuing to make payments is throwing money away, or may default to get the lender to modify the loan. An estimated one in five U.S. homes with a mortgage has “negative” home equity, according to Zillow.com.
In March the Obama Administration announced it was coming up with a plan to encourage cuts to the principal on mortgages exceeding the worth of properties. Previous government efforts did not emphasize principal reduction but focused on lowering monthly payments.
Whatever you think of strategic defaults from an ethical point of view, they appear to be aiding the economy, temporarily, at least, by boosting consumer spending and allowing homeowners to stay current on their other bills. Consumer spending, which accounts for about 70 percent of economic activity in the U.S., rose at a 3.6 percent pace last quarter, more than economists forecast.
The increase, the biggest since 2007, was somewhat puzzling considering that the underemployment rate was at 16.9 percent in March, near the highest level in at least 16 years. (The rate includes people without jobs, part-time workers who would prefer a full-time position, and people who want work but have given up looking.)
All told, borrowers who aren’t making mortgage payments are probably skipping roughly $100 billion annually, an amount equal to 1 percent of consumer spending, according to Mark Zandi, chief economist at Moody’s Economy.com. Zandi likens the money to “a form of stimulus, a little tax cut.”
Not all of that “tax cut” is being spent on iPads, vacations, and lattes.
“Presumably these homeowners know they’re going to have to start paying again” to live somewhere, says Zandi. He suggests that falling delinquencies on credit cards and auto loans may be a sign that homeowners are using mortgage money to pay down other debt.
The bottom line: By not making mortgage payments on “underwater” homes, borrowers may be paradoxically helping to boost the economy.
By Jody Shenn
McLEAN, Va. – The average fixed-rate for a 30-year mortgage climbed above 5 percent for the first time in two months, leading to a decline in mortgage applications.
The average fixed rate on a 30-year mortgage was 5.05 percent this week, up from 4.94 percent last week, Freddie Mac said Thursday. The last time rates were above 5 percent was the week ending Oct. 29, when they were 5.03 percent.
Mortgage rates have risen since they hit a record low of 4.71 percent the week of Dec. 3. They are closely tied to yields on long-term government debt, which have gone up since then.
Higher rates usually lead to a decrease in loan applications to purchase or refinance a home. Mortgage applications for purchases fell nearly 12 percent last week compared with the previous week, while refinance applications dropped 10 percent, the Mortgage Bankers Association said Wednesday.
A Federal Reserve program to buy $1.25 trillion in mortgage-backed securities has kept rates on 30-year mortgages around 5 percent this year. The program, designed to make home buying more affordable, is set to end next spring.
Freddie Mac collects mortgage rates each week from lenders around the country. Rates often fluctuate, even within a given day.
The average rate on a 15-year fixed mortgage rose to 4.45 percent from 4.38 percent last week.
Rates on five-year, adjustable-rate mortgages averaged 4.4 percent, up from 4.37 percent last week. Rates on one-year, adjustable-rate mortgages rose to 4.38 percent from 4.34 percent.
The rates do not include add-on fees known as points. The nationwide fee for loans in Freddie Mac’s survey averaged 0.7 point for 30-year loans. The fee averaged 0.6 point for 15-year, five-year and one-year mortgages.
By ALAN ZIBEL, AP Real Estate Writer
WASHINGTON – Banks and other lenders are still foreclosing on Americans’ homes at a rate that’s outpacing the Obama administration’s main effort to stem the crisis.
In fact, while the Treasury Department’s Home Affordable Modification Program, or HAMP, has started the mortgage modification process on almost 760,000 homeowners who are at risk of losing their homes, less than 5 percent of those workouts have become permanent, government data show.
“HAMP has made only limited progress for nine months now, and the residential foreclosure crisis continues to mount,” said Richard Neiman, the superintendent of banks in New York state and a member of the Congressional Oversight Panel that was formed to monitor the Treasury bank bailout funds that support the mortgage program. He was appointed to the post by the Democratic leadership in the House of Representatives.
Another member of the oversight panel, U.S. Rep. Jeb Hensarling, a Texas Republican and a critic of the bailout bill, called the mortgage program “a failure.”
In a recent report, he said the administration’s efforts “have assisted only a small number of homeowners while drawing billions of involuntary taxpayer dollars into a black hole.” (Hensarling recently left the panel.)
The Treasury Department acknowledges that its program needs to do a better job of making hundreds of thousands of trial modifications permanent, but an official said the program is making progress and is on track to meet many of its goals.
“I think that if you go back and look at what we said we would do in February, we are on track to meet the president’s goals,” said Michael Barr, an assistant Treasury secretary who helps oversee the nation’s main modification program. “We are not going to be able to prevent every foreclosure in the country.”
More than 5 million mortgages have been caught in foreclosure proceedings since the economy began slipping in 2007, and an estimated 8 million to 13 million more could follow in the next five years. The Treasury’s goal is to help modify 3 million to 4 million mortgages in three years, but only about 1 percent of that number have completed the process.
The Treasury program could spend as much as $75 billion helping homeowners avoid foreclosure. The program seeks to pay three parties – the company that services a loan, the bank or investor that owns the loan and the homeowner – if they rearrange the mortgage so the homeowner’s monthly payment is more manageable.
One of the central problems, the administration and its critics agree, is the slow pace of finalizing the modifications it’s started.
Under the program, mortgage servicers – companies that collect monthly mortgage checks and pay the bank, property tax and insurance – arrange the modifications.
Through November, the Treasury Department said that more than 3 million homeowners had been sent information on potential modifications, and that 1 million of them had been offered modifications.
Of those, 759,058 trial modifications have been started – but just 31,382 have been finalized into what Treasury calls “permanent modifications.”
Part of that low conversion rate is to be expected because a modification’s trial period is three months long. If a homeowner remains current on his or her payments and provides all the necessary documents, then the modification can become permanent. A trial modification that started in October, for example, wouldn’t become permanent until January.
However, the conversion rate is low even for trial modifications that have been under way for more than three months.
As of Oct. 31 , only 4.7 percent of the modifications that had been on the books for at least three months had become permanent, according to the Congressional Oversight Panel.
While that doesn’t mean that more than 95 percent of trial modifications begun three months or more earlier “are failures,” in the panel’s words, it does mean that the “vast majority” of trial modifications failed to convert on the schedule that the Treasury originally announced.
Treasury’s Barr said that mortgage servicers – some them stand-alone companies, others units of big Wall Street banks – simply aren’t doing enough to move homeowners from trial to permanent modifications.
While most homeowners are making their payments once they’re in a trial modification and the basic structure of the program is working, more needs to be done to push mortgage servicers to close deals, he said.
“It sounds really boring, but it is basic execution on the ground,” Barr said. “They started to ramp up in the spring, and they have not done a good enough job to get the documents in that need to come in.”
In part, that’s because mortgage service companies generally haven’t been set up to execute wide-scale mortgage modifications. Mortgage servicers historically have been highly automated — more akin to collection agents than to loan officers, and they’ve needed to change their business model, hire staff and rethink how they interact with customers, a process that’s been slow.
“The servicers need to do a better job,” said Tom Miller , the attorney general of Iowa and a leader in state-level efforts to help desperate homeowners. “They have to make sure they have the full staff, make sure they are trained, make sure they don’t make people wait and wait and wait. We have a tendency to accept the wait, and we shouldn’t.”
Faith Schwartz, the executive director of an industry foreclosure-prevention group called the Hope Now Alliance , said mortgage servicers have made a “huge investment in staffing and technology,” and that much of the past year has been spent learning and adapting to the Treasury’s new program.
“My impression is everything that gets done from here on is going to be much better than what was done a year ago,” she said. In a few months, she said, many of the modification statistics will better reflect that.
Miller also said that mortgage companies need to reduce the principal on some of their loans in order to prevent more foreclosures. That could mean, for example, reducing the balance owned on a $200,000 home to, say, $180,000 if the home’s value has dropped substantially. That, he said, was one of the tricks that helped his state emerge from a severe farm crisis two decades ago.
“We saw this movie before in Iowa in the 1980s, and modifications are what saved rural Iowa ,” he said. “Many of them were premised on reduced principal.”
In the third quarter of 2009, nearly a quarter of single-family homeowners with mortgages owed more than their homes were worth, the Congressional Oversight Panel said. The Treasury’s program does little to reduce mortgage principals, the panel said, adding that “as currently structured,” the Treasury program “appears capable of preventing only a fraction of foreclosures.”
By Chris Adams, McClatchy Newspapers
NEW YORK (Reuters) – Demand for U.S. mortgages held last week near six-month lows as the highest long-term borrowing costs since August stifled refinancing, a Mortgage Bankers Association survey showed on Wednesday.
Average 30-year mortgage rates jumped 0.10 percentage point to 5.18 percent in the January 1 week, up more than a half percentage point from the record low in March, driving down refinance requests to levels last seen in early August.
The rate was last higher in late August at 5.24 percent.
“Mortgage rates are going to be on an upward trajectory throughout the year and increase significantly, which means refinance volume is going to drop significantly,” said Michael Lea, director of the Corky McMillin Center for Real Estate at San Diego State University.
Total mortgage applications eked out a 0.5 percent rise in the January 1 week after slumping nearly 23 percent in the Christmas week to the lowest level since late June.
When total demand for home loans has been at its highest last year it was due to a surge in refinancing rather than for home purchases. The highest unemployment rate in more than a quarter century and record foreclosures has kept many consumers from making such a major commitment.
The industry group reported two weeks of loan demand on Wednesday, as its offices were closed between the Christmas and New Year’s holidays.
“We’re not out of the woods in terms of housing,” said Lea.
Demand will drop in the second half of 2010 after an expanded home buyer tax credit ends, and as loan defaults and foreclosures mount, he said.
“I don’t see the current programs being that effective in terms of alleviating that problem,” he said. “If that continues it will provide downward pressure on housing prices and the economy overall.”
The mortgage industry group’s refinance index dropped 1.6 percent in the January 1 week to 1,976.9 after tumbling more than 30 percent the prior week. At its 2009 peak, the refinance index topped 7,400 last January.
The purchase loan index rose 3.6 percent to 212.1 in the January 1 week after a 4.0 percent drop the prior week.
The tax credit is not the only government support to the fragile housing market that will peel off in the spring.
The Federal Reserve by March 31 will have bought more than $1.4 trillion in mortgage-related securities, aiming to hold down borrowing costs and revive housing as well as the economy.
Those purchases end soon before the tax credit also expires. Borrowers qualified for the $8,000 first-time buyer credit and $6,500 move-up buyer credit must sign contracts by April 30 and close on loans by the end of June.
A tenuous housing rebound may not have enough impetus on its own to then withstand the giant obstacles of double-digit unemployment and record foreclosures, economists have said.
By Lynn Adler
WASHINGTON – The number of homeowners who missed at least one mortgage payment surged to a record in the first quarter of the year, a sign that the foreclosure crisis is far from over.
More than 10 percent of homeowners had missed at least one mortgage payment in the January-March period, the Mortgage Bankers Association said Wednesday. That number was up from 9.5 percent in the fourth quarter of last year and 9.1 percent a year earlier.
Those figures are adjusted for seasonal factors. For example, heating bills and holiday expenses tend to push up mortgage delinquencies near the end of the year. Many of those borrowers become current on their loans again by spring.
Without adjusting for seasonal factors, the delinquency numbers dropped, as they normally do from the winter to spring.
More than 4.6 percent of homeowners were in foreclosure, also a record. But that number, which is not adjusted for seasonal factors, was up only slightly from the end of last year.
Stocks slid Wednesday as investors remain concerned with the European debt crisis. The rising number of mortgages also drew some attention. The Dow Jones industrial average fell more than 160 points in early trading.
Jay Brinkmann, the trade group’s chief economist, said the foreclosure crisis appears to have stabilized. Seasonal adjustments may be exaggerating the change from the previous quarter, he added.
“I don’t see signs now that it’s getting worse, but it’s going to take a while,” he said. “A bad situation that’s not getting worse is still bad.”
The number of American homeowners who have missed at least three months of payments or are in foreclosure has surged to around 4.3 million, Brinkmann estimated.
The Obama administration’s $75 billion foreclosure prevention program has barely dented the problem. More than 299,000 homeowners had received permanent loan modifications as of last month. That’s about 25 percent of the 1.2 million who started the program since its March 2009 launch.
About 277,000 homeowners, or 23 percent of those enrolled, have dropped out during a trial phase that lasts at least three months.
Economic woes, such as unemployment or reduced income, are the main catalysts for foreclosures this year. Initially, lax lending standards were the culprit. But homeowners with good credit who took out conventional, fixed-rate loans are now the fastest growing group of foreclosures.
Those borrowers made up nearly 37 percent of new foreclosures in the first quarter of the year, up from 29 percent a year earlier.
The risky subprime adjustable-rate loans that kicked off the foreclosure crisis are making up a smaller share of new foreclosures. They made up 14 percent of new foreclosures in the January-March period, down from 27 percent a year earlier.
By ALAN ZIBEL, AP Real Estate Writer
WASHINGTON – Bank of America will pay $108 million to settle federal charges that Countrywide Financial Corp., which it acquired nearly two years ago, collected outsized fees from borrowers facing foreclosure.
It’s the latest evidence of misconduct at Countrywide, once an industry giant that has since fallen. Last year, three top executives, including former CEO Angelo Mozilo, were charged with civil fraud and insider trading by the Securities and Exchange Commission.
The settlement, which seeks to refund money to about 200,000 borrowers, was announced Monday by the Federal Trade Commission. It is the largest mortgage industry settlement for the agency, which oversees non-banking functions such as debt collection. The FTC has been criticized for failing to protect consumers from abuse by financial companies.
The FTC’s chairman, Jon Leibowitz, accused Countrywide of “callous conduct, which took advantage of consumers already at the end of their financial rope.”
Bank of America purchased Countrywide in July 2008. The actions in the case took place before the acquisition.
Bank of America said it agreed to the settlement “to avoid the expense and distraction associated with litigating the case,” which also resolves litigation by bankruptcy trustees. “The settlement allows us to put all of these matters behind us,” the company said.
Countrywide hit the borrowers who were behind on their mortgages with fees of several thousand dollars at times, the FTC said. The fees were for such services as property inspections and landscaping.
In addition, Countrywide created subsidiaries to hire vendors, which marked up the price for such services, the FTC said. The company “earned substantial profits by funneling default-related services through subsidiaries that it created solely to generate revenue,” the agency said in a news release.
The agency also alleged that Countrywide made false claims to borrowers in bankruptcy about the amount owed or the size of their loans and failed to tell those borrowers about fees or other charges. The settlement requires Bank of America to notify bankrupt borrowers monthly notices about what they owe, including fees.
Bank of America has worked to address allegations of deceptive practices at Countrywide since acquiring the mortgage company. In October 2008, it reached a settlement with attorneys general agreeing to modify troubled mortgages with up to $8.4 billion in interest rate and principal reductions for nearly 400,000 customers.
By ALAN ZIBEL, AP Real Estate Writer
The real estate market has yet to rebound from its historic crash—here’s why.
Four years after the housing bubble popped, the American real estate market has yet to launch a sustainable recovery. Although U.S. home prices have improved modestly since the spring of 2009-and certain regional markets have performed even better-sales and values will face renewed downward pressure later this year in the wake of the expiration of the federal home buyer tax credit. Indeed, some analysts expect the bloated inventory and sputtering demand to trigger a “double dip” housing recession, with prices possibly even slipping back below their April 2009 lows.
This disconcerting outlook has materialized despite some optimistic developments within the market. The 30-percent drop in prices has helped restore affordability to a once wildly-overvalued market, putting additional consumers in position to become homeowners. Meanwhile, mortgage financing has grown downright cheap-with rates falling to 50-year lows. “So what’s the problem then?” asks Timothy Dwyer, the chief executive officer of Entitle Direct. “What’s causing this stagnation in the housing recovery?” Here are six reasons why the housing market hasn’t recovered:
1. Labor market: The labor market holds the key to a recovery in housing. “We need more job growth in this country for a housing recovery to take hold,” Dwyer says. That’s because a steady income stream is the first step to home ownership. And with the national unemployment rate sitting at an uncomfortably high 9.5 percent, a great deal of potential buyers are either out of work or worried about losing their jobs. And until jobs and confidence return, the market won’t have enough demand to support a sustainable recovery, says Mike Larson of Weiss Research. “This is truly a jobless recovery to end all jobless recoveries,” Larson says. “And that’s why I think the housing market is still struggling.”
2. Household formation: The weak labor market is undercutting a housing recovery in another way as well. As jobs become scarce, unemployed workers tend to move in with friends or family members, says Patrick Newport, a US economist for IHS Global Insight. This development works to constrict the creation of new households, which typically serve as a key driver of real estate demand. Only 398,000 new households were formed between March of 2008 and March of 2009, compared to roughly 1.2 million in a normal year, according to Newport. “That was the second smallest increase since 1947,” he says. Although figures for the most recent year have not yet been released, Newport expects they will show another period of sluggish household formation. “That is the key reason why the housing market is still down…and the reason that household formation is down is because the economy is so weak,” Newport says. “Job growth is what will get people moving back out on their own.” Newport expects the economy to add jobs going forward, but only at a modest pace. He forecasts roughly 800,000 additional jobs added this year, 2.7 million in 2011, and 3.5 million in 2012.
3. Foreclosures: Despite a sharp pullback in new home construction, the housing market remains significantly oversupplied. The market had an 8.3-month supply of unsold existing homes in May; that’s above the 6-month supply associated with a balanced market. At the same time, a mountain of distressed properties will ensure that additional inventory continues hitting the market in the form of foreclosures. Foreclosure filings were reported on nearly 1.7 million homes in the first six months of the year, an increase of eight percent over the same period a year earlier, according to RealtyTrac. “The midyear numbers put us on pace to exceed 3 million properties with foreclosure filings by the end of the year, and more than 1 million bank repossessions,” James Saccacio, the chief executive officer of RealtyTrac, said in a statement. And with large numbers of Americans still struggling to pay their mortgage bills, even more foreclosures are on the way. Ten percent of all mortgage loans were delinquent at the end of the first quarter, according to the Mortgage Bankers Association. It could take two years or longer for the market to work through this excess inventory, experts say. And it will be difficult for home prices to rise appreciably until balance is restored.
4. Tight credit: Rates on 30-year fixed mortgages fell to 4.57 percent for the week ending July 15-that’s the lowest level since the 1950s. Not everyone, however, will be able to take advantage of these attractive terms. That’s because banks-who incurred huge losses on bad loans made during the housing boom-have increased their lending standards significantly. “If you don’t have good credit it’s going to be difficult [to get a mortgage],” says John Bancroft, the executive editor of Inside Mortgage Finance. “If you don’t have money for a down payment and you are in a market that is still considered deteriorating, it’s going to be difficult [to get a mortgage].” To get the best rates, today’s borrowers will need a FICO score of 720 or higher, a down payment of around 10 percent, and fully documented income and assets, says Keith Gumbinger of HSH.com. Buyers that can’t meet these requirements could still be eligible for government-backed loans through the Federal Housing Administration. Attractive rates are also available on larger, so-called Jumbo home loans, but the credit bar will be even higher. Today’s Jumbo borrowers generally need a FICO score of at least 740 and should expect to put down anywhere from 20 to 40 percent, Gumbinger says.
5. Falling home prices: With home prices having fallen so dramatically from their 2006 peaks, the real estate market’s weakness has become an obstacle to recovery in and of itself. Although home prices have stabilized recently, they are expected to decline in coming months. Meanwhile, the years-long period of home price deflation has blinded many Americans to the potential benefits of buying a home, Gumbinger says. “The message which has been repeated over and over again in anything from 40-point headlines on down is: ‘People are getting screwed by homeownership.’” As a result, many would-be home buyers are still scared off by concerns that their investment may lose value after they’ve gone to closing. “No one wants to catch the hot falling potato,” Gumbinger says.
6. Selling your other home: While today’s housing market has created some serious deals, not all buyers are in position to take advantage of them. For example, any current homeowner interested changing addresses will first need to sell their home. And with roughly one in four homeowners in negative equity-meaning they owe more on the mortgage than their property is worth-that can be tricky. Homeowners with negative equity may take a loss on their investment if they sell their property. “That’s something that [homeowners] don’t do readily,” says Brad Hunter, the chief economist at Metrostudy. As a result, the 11 million homeowners who have negative equity are less likely help advance a real estate recovery.
Outlook: When considering the trajectory of the real estate recovery, it’s important to bear in mind the magnitude of the boom and bust, Larson says. “We had the biggest housing bubble the country has ever seen,” Larson says. “The reality is that when you get these types of situations that carry so far to the upside, the recovery period takes quite some time.” Newport expects median existing home prices to fall another 8 percent or so before bottoming out in the first quarter of next year. From there, he expects prices to begin a slow and fitful climb.
Luke Mullins , U.S. News
WASHINGTON (AP) — A former top executive of American International Group Inc. says he told the truth about the company’s losses while defending its compensation plan.
Joseph Cassano, who led AIG’s key Financial Products division, is expected to tell a special panel Wednesday that he did “my very best” to estimate the losses accurately ahead of the financial crisis, according to prepared testimony. AIG received $182 billion in bailout money.
Cassano and other executives of AIG and Goldman Sachs Group Inc. are appearing before the Financial Crisis Inquiry Commission, a bipartisan panel created by Congress to examine issues surrounding the crisis.
The hearing focuses on derivatives, the instruments at the heart of the meltdown. It will also examine the relationship between the two giant companies and the derivatives trades they made leading up to the crisis.
“I was truthful at all times about the unrealized accounting losses and did my very best to estimate them accurately,” Cassano said in his prepared testimony.
It was Cassano’s first public testimony since the financial crisis erupted that pushed AIG, one of the world’s largest insurance companies, to the brink of collapse.
When AIG posted a loss for the fourth quarter of 2007, it pinned the blame on an $11 billion writedown related to the credit default swaps held by its Financial Products unit. If AIG couldn’t make good on its promise to pay off the contracts, regulators feared the consequences would pose a threat to the whole U.S. financial system.
Cassano left AIG in 2008 shortly after the $11 billion loss was reported.
“He was at the center of this,” panel chairman Phil Angelides said.
Derivatives may have been synthetic products, “but they destroyed real people’s real life savings,” Angelides said at the opening of Wednesday’s hearing.
Derivatives have received close attention as many have blamed the complex financial products for causing the financial crisis. The value of derivatives hinges on an underlying investment or commodity — such as currency rates, oil futures or interest rates. The derivative is designed to reduce the risk of loss from the underlying asset.
After the subprime mortgage bubble burst in 2007, derivatives called credit default swaps, which insured against default of securities tied to the mortgages, collapsed. That brought the downfall of Lehman Brothers and nearly toppled AIG. New York-based AIG got an initial $85 billion infusion from the government in September 2008.
Goldman Sachs profited from its bets against the housing market before the crisis, and continued to ring up huge profits after accepting federal bailout money and other government subsidies. The firm’s dealings in another type of derivative, known as collateralized debt obligations, have brought it harsh scrutiny by a Senate panel and in the case of one $2 billion CDO, civil fraud charges from the Securities and Exchange Commission. Goldman has denied any wrongdoing.
A CDO is a pool of securities, tied to mortgages or other types of debt that Wall Street firms packaged and sold to investors at the height of the housing boom. Buyers of CDOs, mostly banks, pension funds and other big investors, made money off the investments if the underlying debt was paid off. But as U.S. homeowners started falling behind on their mortgages and defaulted in droves in 2007, CDO buyers lost billions.
Marcy Gordon, AP Business Writer
