In the midst of the post 9/11 American housing market recovery, Wall Street firms were buying billions of dollars of subprime loans from non-bank lenders. By the end of the bubble in housing and subprime lending, Merrill Lynch was one of the largest firms issuing Collateralized Debt Obligations (CDO). After purchasing loans from mortgage originators, they would be packaged into Asset Backed Securities (ABS) and sliced up according to risk. The riskiest parts of several packages would then be grouped together and further securitized into CDOs, and then sold to end investors around the world.
Merrill Lynch would, of course, generate commissions on every step of the process. Warehouse lines of credit were offered to subprime mortgage lenders in order to make loans to the public. Once the mortgages had been originated, the investment firm would purchase packages of the loans from the originators and securitize them.
However, Merrill Lynch took the process another step and actually provided loans to investors to buy their CDO’s once they had been securitized. Most of the money on both ends of the transaction came from the Wall Street firm, increasing their exposure to the subprime industry by orders of magnitude. The firm would buy subprime loans from non-bank institutions it offered lines of credit to, securitize them into ABS’s, create CDO’s out of the riskier portions of the ABS’s, then provide more loans to investors to purchase the bonds.
It is undisputed that Plaintiff’s promissory note found its way to the FFMLT Trust 2005-FF2. The problem for Defendants was how to get the Deed of Trust to this entity. They chose to simply execute an assignment in a fraudulent and illegal manner and assumed the act would not be discovered.
As one of the largest and most prestigious investment firms on Wall Street, Merrill Lynch could also aggressively target the subprime market. The banking giant paid more for loans than any other Wall Street firm . . .
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