WSJ repackage Mortgage backed securities

WSJ repackage Mortgage backed securities - OCTOBER 1 2009...

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OCTOBER 1, 2009 Wall Street Wizardry Reworks Mortgages Repackaged Investments Are Good for Bankers and Ratings Firms, but the Regulators Scoff By LESLIE SCISM and RANDALL SMITH A new wave of financial alchemy is emerging on Wall Street as banks and insurers seek to make soured securities look better. Regulators are pushing back, saying the transactions don't have enough substance and stand to benefit bankers and ratings firms. The deals come as Wall Street firms, buoyed by surging markets, are seeking to profit from the unwinding of the complicated securities that helped fuel the credit crisis. Regulators, meanwhile, are struggling to prevent a recurrence of the crisis. The popular deals are known as "re-remic," which stands for resecuritization of real-estate mortgage investment conduits. The way it works is that insurers and banks that hold battered securities on their books have Wall Street firms separate the good from the bad. The good mortgages are bundled together and create a security designed to get a higher rating. The weaker securities get low ratings. The net result is financial firms' books look better and they need to hold less capital against those assets, even though they are the same assets they held before the transaction. Some state insurance regulators worry that current ratings are flawed -- perhaps even too harsh -- for determining the capital that should back up residential-mortgage securities. But they are chafing at the re-remic strategy. That's partly because of the fees and partly because re-remics
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WSJ repackage Mortgage backed securities - OCTOBER 1 2009...

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