Sub Prime Mortgages

Big investment banks that played a role in the sub-prime mortgage crisis by funding the loans and selling them as securities should be required to invest in local communities, a U.S. financial regulator says. John Dugan, head of the U.S. Office of Comptroller of the Currency, said in remarks prepared for delivery to an affordable-housing group that expanding the Community Reinvestment Act to include big investment banks could add billions of dollars to local areas. "These nonbanks, having played such a large role in the sub-prime mortgages that have caused such problems in communities nationwide" have no incentive to address those problems because they aren't covered by the act, Dugan said.

Bond insurer MBIA Inc. posted a quarterly loss of $2.4 billion as it took charges on billions of dollars of exposure to bonds linked to sub-prime mortgages. But MBIA's beaten-down shares rose more than 4% as adjusted results beat expectations and the company said new business volumes appeared to be rising from the first quarter. The charges announced Monday wiped out 40% of MBIA's net worth, but MBIA said most of the changes it recorded in the value of its exposure would not translate to actual payouts on insurance.

Attempts to place blame for the great financial crisis that sent the economy into a nose dive last year have made household names of top executives such as Angelo R. Mozilo, Richard Fuld and Maurice "Hank" Greenberg. But the only major criminal case to emerge thus far from the global cataclysm involves two lesser-known hedge fund managers who will be thrust into the spotlight today when their trial begins with jury selection in a Brooklyn courtroom. Federal prosecutors allege that former Bear Stearns Cos. fund managers Ralph Cioffi and Matthew Tannin -- in a frantic, eventually unsuccessful scramble in mid-2007 to keep their mortgage bond funds from collapsing -- misled investors about the deepening woes in the portfolios.

The major banks now collecting federal bailout money were not unwitting victims of the mortgage meltdown but instead were directly linked to the root cause of the problem: a subprime lending machine concentrated in Southern California, a new study asserts. The banks were "enablers that bankrolled the type of lending threatening the international financial system," according to the study being released today by the Center for Public Integrity, a Washington-based watchdog group.

The International Monetary Fund cut its 2008 forecast for world growth Tuesday, saying the global economy will deliver the weakest performance in five years as U.S.-originated financial strains intensify. The IMF said no country would escape fallout from the crisis in the U.S. sub-prime mortgage market, where loans made to less creditworthy borrowers were packaged into securities by Wall Street firms and sold around the world.

The FBI is conducting 14 criminal investigations of mortgage lenders and the firms that turned their high-risk loans into complex securities that have left investors worldwide with huge losses, a top official at the federal agency said Tuesday.

Question: What does Bristol-Myers Squibb Co. make besides drugs? Answer: Bad investment decisions. The pharmaceutical company said Thursday that it was taking a $275-million write-off to reflect a sharp drop in the value of debt-related investments, including residential and commercial loans linked to sub-prime mortgages.

Facing pressure from Congress and consumer advocates, lenders are pledging to provide stronger evidence of their progress in reworking costly home loans to prevent borrowers from being foreclosed. Under a plan endorsed by the White House, lenders have agreed to freeze interest rates on certain troubled mortgages and to guide qualified borrowers into more-affordable loans. The plan is aimed at averting massive foreclosures as floating-rate loans adjust to higher payments.

California plans to spend up to $5.6 million in federal grant money to retrain mortgage industry workers who lost their jobs in the wake of the sub-prime lending meltdown, Gov. Arnold Schwarzenegger said Wednesday. The state's initiative will focus on thousands of former employees of mortgage lenders in California, home to many of the big institutions that offered sub-prime mortgages to borrowers with patchy credit histories.

Insurance lawyer David Grais has been poring over equations in finance books to get up to speed on his new specialty: lawsuits stemming from the sub-prime mortgage debacle. With his traditional insurance practice slowing down, the 55-year-old partner at a small New York firm began segueing into sub-prime in June, after a friend predicted at lunch that it would become the next legal blockbuster. "This whole area is a new dawn" for lawyers, Grais said. First came the sub-prime mortgage boom.