jules

By Julian Fisher

Bank of America shares have been rocked by news that a consortium of mortgage bond investors is demanding it repurchase billions in soured mortgages, amplifying the effects of the recent “robo-signing” debacle.

Industry proponents are downplaying the risk that these so-called “putbacks” will impact more than a small number of financial institutions, but the evidence increasingly points to substantial and widespread breakdowns in controls along the mortgage origination and securitization chain.

What’s more, the impetus for putbacks appears to be shifting from lapses in documentation to ones involving possible fraud and misrepresentation.

The potentially fraudulent activity has come to light through data gleaned from reports and FDIIC hearings involving third party re-underwiter Clayton Holdings, as reported by Reuters.com blogger Felix Salmon.

Unlike the documentary issues at the heart of the “robo-signing” debacle, these findings point to a banking-industry wide epidemic of bundling loans which failed the originators’ underwriting standards into pools sold to investors.