Mortgage Backed Securities Attorneys
Types of mortgage backed securities
Agency MBS
Agency MBS are issued or guaranteed by Fannie Mae, Freddie Mac, or Ginnie Mae. They carry an implicit or explicit government guarantee of timely principal and interest payment — making them among the safest fixed income instruments available. Claims involving agency MBS typically arise from prepayment and extension risk misrepresentation or from unsuitable overconcentration rather than credit quality misrepresentation.
Non-agency (private label) MBS
Non-agency MBS are issued by private financial institutions without a government guarantee. They are backed by pools of mortgages that may include subprime, Alt-A, or other non-conforming loans. Non-agency MBS were the primary vehicle for distributing subprime mortgage exposure throughout the financial system in the years leading up to 2008, and their collapse was at the center of the financial crisis. Claims involving non-agency MBS typically allege misrepresentation of the credit quality of the underlying mortgage pools and inadequate disclosure of the underwriting deficiencies in those pools.
MBS misconduct claims
- Credit quality misrepresentation: non-agency MBS were assigned investment-grade credit ratings that grossly overestimated the quality of the underlying mortgage pools. Broker-dealers who recommended these instruments based on their ratings while possessing due diligence information indicating the underlying pools were defective may face fraud liability.
- Prepayment risk misrepresentation: both agency and non-agency MBS are subject to prepayment risk — when interest rates fall, mortgage borrowers refinance, shortening the security’s effective maturity and reducing the investor’s yield. This risk was frequently not adequately explained to retail MBS investors.
- Unsuitable recommendations: recommending non-agency MBS with complex tranche structures and subprime mortgage exposure to conservative retail investors who needed safe fixed income was a fundamental suitability violation.
- Concentration in mortgage-related instruments: portfolios overconcentrated in MBS faced correlated catastrophic losses in 2008 when the residential mortgage market collapsed nationwide.
Frequently asked questions — mortgage backed securities
My MBS were rated AAA — how did I lose money?
The investment-grade ratings assigned to non-agency MBS tranches reflected mathematical models that underestimated the probability of nationwide simultaneous mortgage default — the actual scenario that occurred in 2007-2008. Brokers who recommended MBS as safe based on those ratings, while aware of underlying due diligence concerns about mortgage pool quality, may face liability for the resulting losses regardless of the initial credit rating.
Are MBS claims from 2008 still viable?
Many 2008 MBS claims are likely time-barred under FINRA Rule 12206’s six-year eligibility period. However, some claims involving ongoing harm — MBS that were never fully written down, or that were misrepresented in ways that were only discoverable later — may still be viable. Contact Bakhtiari & Harrison for a free evaluation before assuming a deadline has passed.
I still hold MBS that have not recovered their original value — do I have a claim?
Possibly, depending on the specific instruments held, when they were purchased, and the specific representations made at the time of recommendation. Bakhtiari & Harrison evaluates all MBS claims at no charge.
For a full overview of the firm’s investment product failure practice, visit the Product Failure page.
Contact a mortgage backed securities attorney — free consultation
Contact Bakhtiari & Harrison for a free, confidential consultation. Our FINRA attorneys evaluate every potential investor claim at no charge. Investor cases are handled on a contingency fee basis — no recovery, no fee.
Investor cases are handled on a contingency fee basis — no recovery, no fee.
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