Mortgage bond holders taking collective action

SHELL GAME CONTINUES. WHO HAS THE BOND? WHO HAS THE RECEIVABLE? WHO HAS THE SECURITY INTEREST? WHO IS GETTING PAID? WHERE ARE THE MONTHLY PAYMENTS GOING? FANNIE MAE AND FREDDIE MAC ARE BIG PLAYERS, AS IS THE FEDERAL RESERVE. ARE THEY THE ONES REALLY FORECLOSING UNDER COVER OF SECURITIZATION?

EDITOR’S NOTE: Another entry under the category of “I told you so.” Sooner or later the investors were going to figure out that they had real claims against the investment bankers and other intermediary entities in the illusion of the securitization chain, together with the servicers and other players at the loan closing. Not long ago investors would not talk with each other. Now they are banding together. Things change. This development will lead to further unraveling of the factual constipation that those players arrogantly thought they keep a lid on. The inevitable and only logical outcome here is the entry of real facts portraying the reality of these transactions.

The current reality is very simple: the investors were tricked, the borrowers were tricked, and the intermediaries took all the money. The ONLY way this can be fixed from a National perspective is to bring the borrowers and the investors together, realizing that they both have the same interests — recovery from their financial ruin. Investors need to bring certainty to what is left of their “investments.” They need to know the value of their investments and how best to recover that value. Without that they can’t bring a specific action for damages. Without that they can’t fire the intermediaries and get an honest deal launched with borrowers on property that just isn’t worth what was advertised.

There is no way to avoid principal reduction in some form because it is already there. The value is down to where it should have been at the beginning and it isn’t going up. Investors, sellers,, buyers and borrowers need to accept this fact and government, including the judiciary, need to realize that this wasn’t normal market movement, this was cornering the market and manipulating it. The investors will prove that in their own lawsuits.

A direct approach from investors to borrowers will eliminate the ridiculous fees being sucked out of what is left of these deals, and allow the investors to recoup far more than  what they are being offered. Most homeowners would be willing to accept a principal reduction that splits the loss fairly between the investors and borrowers if they were able to get fair terms.

The difference is night and day. What would have been zero recovery for the investor could be as much as $100,000 or more in a genuine modified or new mortgage. And with cooperation between borrower and investors the security interest, which is in my opinion completely invalid and unenforceable, could be perfected, title cleared and the marketplace renewed with confidence in contract , property laws and the rights of consumers and investors. Community banks could fund the new mortgages  giving the investors an immediate exist or the investors could hold the paper through REAL special purpose vehicles that were REALLY created and REALLY existing.

Mortgage bond holders get legal edge; buybacks seen

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By Al Yoon

NEW YORK July 21 (Reuters) – U.S. mortgage bond investors have quietly banded together to gain the long-sought power needed to challenge loan servicers over losses the investors claim resulted from violations in securities contracts.

A group holding a third of the $1.5 trillion mortgage bond market has topped the key 25 percent threshold for voting rights on 2,300 “private-label” mortgage bonds, said Talcott Franklin, a Dallas-based lawyer who is shepherding the effort.

Reaching that threshold gives holders the means to identify misrepresentations in loans, and possibly force repurchases by banks, Franklin said.

Banks are already grappling with repurchase demands from Fannie Mae and Freddie Mac, the U.S.-backed mortgage finance giants.

The investors, which include some of the largest in the nation, claim they have been unfairly taking losses as the housing market crumbled and defaulted loans hammered their bonds. Requests to servicers that collect and distribute payments — which include big banks — to investigate loans are often referred to clauses that prohibit action by individuals, investors have said.

Since loan servicers, lenders and loan sellers sometimes are affiliated, there are conflicts of interest when asking the companies to ferret out the loans that destined their private mortgage bonds for losses, Franklin said in a July 20 letter to trustees, who act on behalf of bondholders.

“There’s a lot of smoke out there about whether these loans were properly written, and about whether the servicing is appropriate and whether recoveries are maximized” for bondholders, Franklin said in an interview.

He wouldn’t disclose his clients, but said they represent more than $500 billion in securities managed for pension funds, 401(k) plans, endowments, and governments. The securities are private mortgage bonds issued by Wall Street firms that helped trigger the worst financial crisis since the 1930s.

Franklin’s effort, using a clearinghouse model to aggregate positions, is a milestone for investors who have been unable to organize. Some have wanted to fire servicers but couldn’t gather the necessary voting rights.

“Investors have finally reached a mechanism whereby they can act collectively to enforce their contractual rights,” said one portfolio manager involved in the effort, who declined to be named. “The trustees, the people that made representations and warranties to the trust, and the servicers have taken advantage of a very fractured asset management industry to perpetuate a circle of silence around these securities.”

Laurie Goodman, a senior managing director at Amherst Securities Group in New York, said at an industry conference last week, “Reps and warranties are not enforced.”

Increased pressure from bondholders comes as Fannie Mae and Freddie Mac have been collecting billions of dollars from lender repurchases of loans in government-backed securities. With Fannie and Freddie also big buyers of Wall Street mortgage bonds, their regulator this month used its subpoena power to seek documents and see if it could recoup losses for the two companies, which have received tens of billions in taxpayer-funded bailouts.

Some U.S. Federal Home Loan banks and at least one hedge fund are looking to force repurchases or collect for losses.

Investors are eager to scrutinize loans against reps and warranties in ways haven’t been able to before. Where 50 percent voting rights are required for an action, the investors in the clearinghouse have power in more than 900 deals.

Franklin said the investors are hoping for a cooperative effort with servicers and trustees. While he did not disclose recipients of the letter, some of the biggest trustees include Bank of New York, US Bank and Deutsche Bank.

A Bank of New York spokesman declined to say if the firm received the trustee letter. US Bancorp and Deutsche Bank spokesmen did not immediately return calls.

“You have a trustee surrounded by smoke, steadfastly claiming there is no fire, and what the letter gets to is there is fire,” the portfolio manager said. “And we are now directing you … to take these steps to put out the fire and to do so by investigating and putting loans back to the seller.”

Servicers are most likely to spot a breach of a bond’s warranty, Franklin said in the letter.

Violations could be substantial, he said. In an Ambac Assurance Corp review of 695 defaulted subprime loans sold to a mortgage trust by a servicer, nearly 80 percent broke one or more warranties, he said in the letter, citing an Ambac lawsuit against EMC Mortgage Corp.

The investors are also now empowered to scrutinize how servicers decide on either modifying a loan for a troubled borrower, or proceed with foreclosure, Franklin said. Improper foreclosures may be done to save costs of creating a loan modification, he asserted. (Editing by Leslie Adler)

Tags: borrower, disclosure, discovery, foreclosure, foreclosure defense, fraud, HERS, Lender Liability, Mortgage, predatory lending, rescission, securitization
Posted in bubble, Corruption, evidence, expert witness, foreclosure mill, securities fraud, Servicer |