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Bloomberg Markets highlights how the top underwriters of subprime auto bonds have scaled back their balance sheet usage for subprime auto loans, as subprime borrowers continue to fall behind payments at highest rate since financial crisis. Yet, demand for the securities remain strong as investors clamor for yield.
Investment banks took heat after the 2008 financial crisis for bundling debt into bonds that later soured. The six largest banks have set aside more than $46 billion to buy back bad mortgages since the crisis, according to Bloomberg Intelligence’s analysis. A U.S. Senate subcommittee report in 2011 said that “investment banks were the driving force behind the structured finance products that provided a steady stream of funding for lenders originating high risk, poor quality loans and that magnified risk throughout the U.S. financial system.”
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