Merrill Lynch's retained stake in securitized assets, including residential mortgages packaged into bonds, was $10.3 billion at the end of June.
There has also been a marked deterioration in the market for commercial mortgage-backed securities, which are commercial mortgages packaged into bonds.
Insurance coverage also supports a $300 billion market for commercial mortgages packaged as securities, the second-largest source of cash for real estate projects after traditional bank loans.
The penalty aims to settle allegations, dating back to 2005, about the way the bank selected mortgages, packaged them into bonds and sold on to investors.
While the firm is in a stronger financial position than it was in 2009, investors remain deeply concerned about its potential losses from harmful subprime mortgages packaged by Countrywide Financial, the mortgage specialist Bank of America acquired in 2008.
Banks in Europe and the United States have virtually stopped lending to each other, mistrustful of the value of the bundles of American mortgages packaged into complex financial products on each other's balance sheets.
The repurchase obligations are discussed in Countrywide's prospectuses and pooling and servicing agreements that cover about $122 billion worth of mortgages packaged and sold to investors from early 2004 to April 1 of this year.
Unless lenders can have mortgages packaged together and sold to other investors the amount of money going into housing even as the economy recovers will be inadequate.
As for the complexity of the assets -- some of which range in the thousands of pages with complex mortgages packaged together in trusts - causing confusion among the masses, Richardson makes a valid point.
Federal records show it was the largest mortgage package given by MBNA to any single debtor that year.
The Citi mortgage package was declared in default a mere nine months later, and according to the S.E.C., Citigroup's clients lost over $700 million while Citi raked in a $160 million profit on its short position.
