Investors Holding Voting Rights In More than 2,600 MBS Deals Prepare To Fight Back Against Servicers
It just went from bad to worse for mortgage servicers: Bloomberg reports that investors who collectively hold over $500 billion in MBS, are huddling and preparing to fire back at the servicers. Mortgage-bond investors represented by Dallas lawyer Talcott Franklin will send letters to securities trustees complaining that they shouldn’t bear the costs of loan servicers’ so-called robo-signing. The reason for the ire? It is the noteholders who ended up having to pay legal fees associated with discoveries of rampant fraud: "The investors, who Franklin has said own more than $500 billion of the securities, are “pretty disturbed” that mortgage-bond trusts are being forced to pay penalties. Judges are forcing the trusts to cover homeowners’ attorney fees when servicer misdeeds are discovered. “Look who got sanctioned,” Franklin said today at a conference in New York organized by law firm Grais & Ellsworth LLP. “It wasn’t the servicer, it was the holder of the note." One wonders just how large this number is when summed across the hundreds of assorted holders, and what happens when say a Bank of America is stuck with the invoice.
And hundreds it was:
New York-based lawyer David Grais hosted the conference, which about 100 people attended and about 150 were expected to listen to via a webcast. He represented securities firm Greenwich Financial Services LLC in a lawsuit that stemmed from Bank of America’s 2008 agreement with a group of attorneys general to rework debt to settle charges of fraudulent lending by Countrywide Financial, which the bank bought that year.
While Grais lost the case this month as the court ruled Greenwich Financial didn’t own enough of the bonds to pursue it, investors may have more luck heading off a new settlement by mortgage companies that harms them, he said today.
Just so it is clear, those 100-150 people who are about to launch lawsuits.
And here is the even worse part:
Mortgage servicers have been reworking investor-owned loans while not seeking amendments on debts they hold themselves, a misstep investors can use to bypass trustees or force them to act, Bill Frey, the head of Greenwich Financial, said at the conference. The four largest U.S. banks, which service a majority of U.S. mortgages, own more than $400 billion of home-equity debt, Goodman said.
“We found servicer defaults in 100 percent of the trusts,” Frey said.
Franklin said the group of investors coordinating through his firm’s RMBS Investor Clearing House owns more than 25 percent of so-called voting rights for about 2,600 mortgage securitizations, and more than 50 percent for about 1,150 deals.
That's a lot of deals that are about to be put back. Does JPM wish to reconsider its putback charge estimate?