Readers suggested the future of mortgage securitization for a weekend topic. "I suggest a weekend thread on housing bust litigation. Some examples of which I am aware include: 1) NY state Attorney General subpoenas of Fannie and Freddie, plus related investigation of WaMu and outfit that does its appraisals; 2) Class action suit against CFC; 3) Other?"

"I am also curious about what other litigation might ensue going forward; for instance, what about investment banks that paid out record bonuses last year, but are now reporting 'larger than expected' subprime writedowns in the $3bn+ range? And what are the broader implications of a possible wave of litigation for the future of Wall Street’s vaunted asset securitisation business model?"

One poster was sarcastic. "CEO Mozilo did deposit his stock sale Dollars $$$$$$$$$$$$$$$$ directly into his 'personal' money market account with Countrywide 'Bank' right? I mean, that would really be the thing to do to show all the 'other' depositors that everything is goin’ be alright…down the road."

One was philosophical."Success has a hundred authors; failure, a thousand lawyers."

One points to the raters. "IMHO, none of this could have happened if the ratings agencies were doing (what investors assumed was) their job — appropriately identifying risk characteristics of various securities."

The Australian. "Jig could be up for asset-to-security converting. An Australian at the forefront of the Wall Street securitisation industry has warned that the business of converting assets such as home loans into marketable securities will be 'seriously challenged' as regulators and financial markets seek remedies for the severe downturn in US housing and credit markets."

"'There is no doubt that securitisation is going to be seriously challenged,' said Greg Medcraft, managing director and global head of securitisation at Societe Generale in New York. 'We could be in for a period of painful adjustment.'"

"A securitisation trust linked to the struggling Countrywide Financial Corp, the US’s biggest home lender, was accused of securities fraud in an action filed by a California law firm. It’s believed to be the first time a securitisation trust has faced a possible class action suit."

"Mr Medcraft said the system of selling home loans into a secondary securities market needed reform because risk had become too disseminated. Too often, he said, loan originators and lenders were left with 'no skin in the game.' This, along with the need to restore confidence in ratings agencies, was among the biggest challenges."

The National Post. "Alberta bank ATB Financial has set aside $79.6-million for potential losses and restructuring costs on asset-backed commercial paper. ATB president Dave Mowat said Aug. 28 that 'there isn't any impairment of the underlying asset.'"

"On Friday, however, he acknowledged 'this is a serious financial event for ATB.'"

The Washington Post. "Investors already burned by turmoil from the credit crunch are now worried about unwanted surprises in the industry that insures bonds."

"In the face of mounting losses in U.S. mortgages, rating agencies are reviewing eight leading bond insurers, which could lead to downgrades. Such a move could ripple across the financial sector, because if a bond insurer is downgraded, most of the securities it has blessed as virtually risk free are likely to follow."

"'It would have a domino effect on all of the entities that hold these vehicles,' said Ed Rombach, a senior analyst at Thomson Financial. 'They would have to have more write-offs. It's a vicious cycle.'"

"Moody's Investors Service and Fitch Ratings are examining the capital levels and structured debt these firms have insured because they are worried that the deterioration in the mortgage market may expose them to greater losses. Moody's expects to finish its review next week. Fitch said it would complete its review within three weeks."

"'The people watching this are not going to say, 'I'm so happy they're going to be downgraded only to double-A,' said Sylvain Raynes, a founding principle of a structured-finance consultancy. 'They're going to say, 'This is the beginning of the end.' And they're going to want to go before everyone else goes. This is a stampede.'"

From MSNBC. "Borrowers who took out loans in the first six months of this year are already falling behind on their payments faster than those who took out loans in 2006, according to a report from investment bank Friedman, Billings Ramsey. That’s making it even harder for would-be buyers to get new mortgages."

"This example illustrates the distress many homeowners are in or will find themselves in: A subprime adjustable-rate mortgage on a $400,000 home could have payments of about $2,200 a month, with borrowers paying 6.5 percent, interest only. When the teaser period expires, that payment becomes $4,000, with the homeowner paying 12 percent and now having to come up with principal as well as interest."

"Minneapolis resident Chad Raskovich found himself in a such a situation. He hoped — it turned out, in vain — to gain more equity in his home and that a strong record of payments would enable him to secure a better loan later on."

"'It’s not just me, it’s a lot of people I know. The housing market in the Twin Cities has dramatically changed for the worse in the years since I purchased my home. Now we’re just looking for a solution,' he said."

"Today’s financial system is interconnected: Mortgages are sold to investment firms, which then slice them up and package them as securities based on risk. Then hedge and pension funds buy up such investments."

"When home prices kept rising, these were lucrative assets to own. But the ongoing collapse in housing prices has set off a chain reaction. This has resulted in more than $500 billion of potentially worthless paper on the balance sheets of the biggest global banks — losses that could spill into the huge pension and mutual funds that also invest in these securities."

"'We all know that more hits from these subprime loans are coming, but are having a devil of a time figuring out how it will happen or how to stop it,' said economist Thomas Lawler, who was once chief economist for Fannie Mae. 'We’ve never been in this situation before.'"