Undisclosed risks associated with mortgage backed securities with ties to risky subprime mortgages have cost investors hundreds of millions of dollars as those securities lost value.

Subprime mortgage risks hidden from investors

According to some reports, up to 35 percent of all mortgage securities issued in 2006 were of the risky sub-prime variety. Yet in this risky mortgage environment, many banks and brokerage firms failed to perform adequate due diligence on mortgage loans before including them in tranches of Collateralized Debt Obligations (CDOs) and other mortgage backed securities. As a result, many tranches contained risky sub-prime mortgages of questionable value, the value of which were likely overrepresented in the security.

Consequently, individual and institutional investors were mislead into investing in illiquid securities closely tied to the doomed sub-prime mortgages. As the foreclosure rate of sub-prime mortgages has soared, the securities tied to them have experienced sharp declines in value resulting in hundreds of billions of dollars in financial losses for individual and institutional investors.

Mortgage backed securities fraud devastates investment funds

The fallout from collapsing mortgage backed securities has had a devastating impact on investments that were touted by brokerage firms as being safe, stable investments. Hedge funds and mutual funds that were heavily invested in mortgage backed securities have experienced staggering losses as mortgage backed securities lost their value and became illiquid. By investing so heavily in mortgage backed securities tied to risky subprime mortgages, fund managers were operating at odds with fund objectives thereby misleading their investors who reasonbly beleived, based on representations made by fund managers, that they were making more conservative investments.

Failure to disclose risks

By misleading investors to invest in funds that were much riskier than advertised, fund managers and brokerage houses violated their legal and ethical duties to disclose risks to investors. The result is that many individual and institutional investors have suffered huge financial losses.

Wachovia fund fails investors

The Wachovia Evergreen Ultra Short Opportunities Fund was pitched to investors as a fund that seeks "current income consistent with preservation of capital and low principal fluctuation." But because the fund has invested over 70% of its assets in mortgage securities including subprime mortgages, it lost 20% of its value in 16 days. Such a significant loss in less than 3 weeks is inconsistent with representations Wachovia made to investors, and represents a failure to disclose the underlying risks associated with the fund so heavily invested in subprime related securities. Investors who incurred significant losses in the Wachovia Evergreen Ultra Short Opportunities Fund may be entitled to recover losses.

Morgan Keegan misled mutual fund investors

Investors in some Regions Morgan Keegan mutual funds have suffered serious financial losses as a result of the funds disproportionate investments in securities linked to subprime mortgages. Despite fund descriptions as having "conservative credit posture" and being "without excessive credit risk", several Morgan Keegan funds have lost between 50% and 75% of their values as a consequence of their heavy investments in mortgage backed securities with ties to risky subprime mortgages. Investors who invested in these funds based on representations of them as conservative funds have been defrauded by Morgan Keegan and may be entitled to recover losses.

Contact a Mortgage Fraud Attorney

If you have suffered a serious financial loss as a result of fraudulently represented securities that had ties to risky subprime mortgages, you may be entitled to recover your losses from those responsible. Contact a securities attorney to learn more about your options.

Contact a securities attorney today for a FREE evaluation of your case by submitting the form at right or by calling toll-free (866) 222-2606.