Nov 03, 2009 (The Bellingham Herald - McClatchy-Tribune Information Services via COMTEX News Network) --

The story of one Ferndale mortgage loan demonstrates how the global flow of investment dollars fueled home sales and home prices during the boom years that ended with a bang.

In the fall of 2006, a buyer purchased a Grandview Road four-bedroom home using a $230,000 adjustable-rate mortgage loan from Wells Fargo Bank. It had an initial interest rate of 7.95 percent and interest-only payments until 2017, with a possible payment reset date of December 2011, according to county property records.

But within a couple of years, the owner was probably making his payments to Deutsche Bank, the giant German financial institution that is the loan servicing agent for Goldman Sachs and many other firms that pooled individual mortgage loans. Pools of such loans provided streams of cash that could be used to back bonds that promised investors safe, steady returns based on the loan payments from thousands of individual homeowners.

In August 2008, Wells Fargo filed a notice with the Whatcom County Auditor's office, indicating that the Ferndale mortgage had been sold to something called GSAA Home Equity Trust 2007-4. Deutsche Bank collected payments, but the "GS" in the trust's name stands for Goldman Sachs.

U.S Securities & Exchange Commission regulatory filing indicates that GSAA Home Equity Trust 2007-4 contained 2,810 mortgage loans from all over the country, including two from Bellingham as well as the one from Ferndale. The same filing also indicates that 55 percent of those loans -- including the one from Ferndale -- were "stated income" loans. That means the buyer was not required to prove his or her actual income.

By October 2008, years before the loan reset date of 2011, the Ferndale borrower was already in deep trouble. Deutsche Bank's loan trustee filed a notice of foreclosure, scheduling a foreclosure sale for Jan. 2, 2009.

But property records indicate that the borrower managed to find a buyer for the home before that, and may have managed to get some cash out of the deal.

Holders of bonds backed by GSAA Home Equity Trust 2007-4 were not so lucky. That Ferndale mortgage was not the only one in trouble. By August 2008, Standard & Poors had downgraded vast quantities of mortgage-backed bonds.

S&P estimated that the losses on that GSAA trust would be close to 15 percent. That's not the kind of loss that buyers of investment-grade bonds are generally willing to risk.

In December, the NECA-IBEW Health & Welfare Fund, which provides benefits to union electrical workers, filed a class action lawsuit against Goldman Sachs in connection with the GSAA trust and several similar mortgage loan pools. The lawsuit claimed that Goldman Sachs had misled the union fund and other bond investors about the level of risk involved with their mortgage bond investments.

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