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Mortgage Fraud and Collateralized Debt Obligations
For Flipping Frenzy readers interested in diving a little deeper into the role mortgage-backed securities played in the current credit crunch, take a look at this short video about Collateralized Debt Obligations (CDOs):
For the uninitiated, CDOs are an unregulated type of asset-backed security and structured credit product. Some news and media commentary blame our current financial woes on the complexity of CDO products and the failure of risk and recovery models used by credit rating agencies to value these products. Between 2003 and 2006, new issues of CDOs backed by asset-backed and mortgage-backed securities had increasing exposure to subprime mortgage bonds. As delinquencies and defaults on subprime mortgages occur as a result of real estate fraud, mortgage fraud or predatory lending, CDOs backed by subprime collateral experience severe rating downgrades and possibly future losses.
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