MBS Investors Jockey for Position

An article from Reuters last week describes the building tension between MBS investors and the banks that sold them the securities and even among different groups of MBS investors.

It seems that certain groups of investors, such as those that are fighting with Bank of America over the mortgages packaged in some of their shoddiest securitizations are getting worried that they will either get less value than they first hoped or, worse, be left standing at the altar.

Bank of America is as good an example as any for what seems to be developing in this fist fight.  Last year, they spent significant time and effort negotiating settlements with Fannie Mae and Freddie Mac in connection with bad mortgages pledged to the GSE’s programs.  Now word comes along that BoA is in serious negotiations with another major investor group, led by Pacific Investment Management Co. (PIMCO), to complete what some on the outside believe will be a “sweetheart deal” for PIMCO and the group they represent. 

Not a surprise as this is the way these things usually go.  Can anyone really blame BoA for what appears to be their strategy; namely focusing their attention on the biggest problems first and then working their way down to the potentially less problematic ones?

This maybe a signal to all those “sophisticated” investors that have cried “foul” that maybe they need to get to the negotiating table before it is too late.   Usually preferable to be a participant in crafting the solution than to wait and have the terms dictated to you.

About markferraris
Managing Principal Orchard Street Partners LLC

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