Bailout

How much money is flowing to mortgage bonds?

By Felix Salmon

If bankers are good at anything, surely it’s counting money. If there’s a cashflow, anywhere, bankers will surely be able to quantify it and report it. Or, not:

Mortgage-bond buyers are losing faith in the accuracy of remittance reports, and some say the apprehension could soon factor into their investment strategies.

Remittance reports, distributed monthly by securitization trustees, are supposed to provide routine snapshots of the cashflow-collection and distribution activities of servicers. However, investors say there has been a rash of recent instances in which the reported data differed considerably from what actually happened.

Loan servicers, it seems, are so spectacularly incompetent that they can’t even report to bondholders how much money they’re being paid. Especially when a loan has been modified, the servicers don’t seem to be able to report the new cashflows accurately.

Not that this is a bad time to reduce investors’ faith in the transparency and reliability of mortgage-backed securities, or anything.

Full post as published by Macroprudential on October 15, 2010 (boomark / email).