Insider's Game

Selected writings by David Fiderer

Investors say, “Fool me once…” to the moral hazard of RMBS

First published in American Banker on September 12, 2013

Investors are likely to say “fool me once…” which may explain why the volume for newly issued private label residential mortgage securitizations is a fraction of what it was a few years ago. Through bitter experience, bond purchasers learned about the moral hazard embedded in private RMBS and their grossly inadequate legal protections.


“The private RMBS market was at the heart of the financial panic and the Great Recession that followed,” writes Mark Zandi of Moody’s Analytics. Indeed. At year-end 2007, private RMBS totaled $2.2 trillion. According to Zandi’s tally, those bonds realized losses, during the 2006-2012 period, of $449 billion.  That amount exceeded the total losses on $9 trillion of mortgage debt financed by everyone else, all depository institutions and all government-backed lenders, including Fannie Mae and Freddie Mac.


See complete article in American Banker.