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by Ruth SimonWednesday, October 27, 2010
provided by
More institutional investors are joining efforts to recover
losses on battered mortgage
portfolios amid concerns about sloppy mortgage servicing and
underwriting practices.
Nearly 200 investors are expected t o attend ameeting in New
York on Wednesday called"Robosigners and Other Servicing Failures,"
saidDavid Grais, a New York s ecurities lawyer who issponsoring the
conference and represents twoFederal Home Loan Banks that have
filed lawsuitsover mortgage-backed securities they own.
Meanwhile, Talcott Franklin, a s ecuritizationlawyer in Dallas
who has been organizing bondinvestors t o pursue their claims
against mortgage-loan servicers and sellers, says he has
"beenpicking up two to three [investors] a day" as theforeclosure
mess deepened in the past t wo weeks.
Richard Barrent, a former Wells Fargo & Co. executive who
now analyzes loanspackaged into securities for possible defects,
says he is getting "a spike [in calls from]
investors who want to know how can we hold servicers and
originators accountable."
The moves show how investors in mortgage securities are venting
their frustration withrising losses and questions about how
mortgage companies are handling troubled loans.Some of those
investors also are sizing up potential strategies for trying to
recoup lossesand trying to shield themselves from the cost of any s
ettlement between mortgage-servicing companies and state attorneys
general, who are investigating mortgage-servicing practices.
"Investors' frustration has reached a boil in response to
monthly loan losses,unexplainable bond write-downs, stonewalling
access to loan files, inequitable treatmentof first- and
second-lien mortgage loans and ineffective loan modifications,"
said JonathanLieberman, a managing director with Angelo, Gordon
& Co., which invests in mortgage-backed securities.
The most public display of bondholder unrest came last week when
a group of largeinvestors objected to the handling of 115 bond
deals issued by affiliates of CountrywideFinancial Corp., now part
of Bank of America Corp. The investor group
includesgovernment-owned mortgage companies Freddie Mac and Fannie
Mae, the FederalReserve Bank of New York, BlackRock Inc. and
Allianz SE's Pacific InvestmentManagement Co.
Potential losses to banks from the repurchase of troubled loans
could reach $55 billion to$120 billion, according to bond analysts
at J.P. Morgan Chase & Co.
Some investors in mortgage-backed securities say the 50-state
investigation is giving apush to efforts among investors to join
forces. "The possibility of a ... settlementimposing additional
losses for the negligent conduct of servicers upon our retirees
hasgalvanized investors to organize and fulfill our fiduciary
responsibilities," Mr. Liebermansaid.
Patrick Madigan, an assistant attorney general in Iowa, which is
leading the investigation,said such concerns are misplaced because
any deal involving loan modifications wouldbe structured in a way
that would benefit investors. "We are only interested
inmodifications where the cash flow from the modified payment exc
eeds the expectedproceeds from a foreclosure sale," he said.
Mr. Talcott's group and the Countrywide investors are s eeking
to recoup losses under
contracts t hat govern mortgage deals. One key challenge: Such
agreements typicallyrequire that investors gather 25% of the voting
rights in the deal to formally trigger theirability to get the
trustee to consider action against the mortgage servicerand to
bringtheir own action if the trustee declines. Trustees are charged
with administering thesecuritizations on behalf of investors.
Another approach being taken by some investors, including
several Federal Home LoanBanks, is to file securities lawsuits
seeking to force Wall Street banks to buy backmortgage-backed
bonds. That option is typically open t o investors who bought t
heirbonds at or near the time of the public offering, but not to
those who purchased thesecurities much later in the secondary
market, says Mr. Grais.
Organizing investors has been difficult, partly because of
trouble getting acc ess to loanfiles and proving that any defects
have materially hurt bondholders. Still, an analysis byMr. Grais's
firm of 48 bond deals with a total of 111,552 loans found that more
than one-fourth of the loans had inflated appraisals at the time
the mortgage was made. In 21% ofthe loans, evidence suggested the
owner didn't live in the property.
"There's a large amount of uncertainty around the risk," said
Jack Micenko, a banking
Mortgage Losses Build Team Spirit
10/27/2010 mortgage-losses-build-team-spirit: Pers
yahoo.com//mortgage-losses-build- 1
8/8/2019 IS YOUR PENSION GONE?? INVESTORS GOING AFTER SECURITIES
TRUSTS & BANKS
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analyst with Susquehanna Investment Group. He expects the
potential liability to exposebanks "to headline risk for a long
time to come."
Write to Ruth Simon at [email protected]
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1 0A Y ahoo! User 16 minutes ago Report Abuse
"Potential losses to banks from the repurchase of troubled loans
could
reach $55 billion to $120 billion, according to bond analysts at
J.P. Morgan
Chase & Co."
Quick, someone take the checkbook away from Tim Geitner.
Reply
1 0A Y ahoo! User 20 minutes ago Report Abuse
I cannot believe these people are s till t rying to rip off
taxpayers. Do they
not know that there is risk in investing? The taxpayer should
not have to
bailout anyone else because someone did not do their due
diligence. I have
lost money on the stockmarket, does that mean taxpayers are
going to
bail me out too?
Reply
1 3A Y ahoo! User 33 minutes ago Report Abuse
Instead of blaming Democrats for Fannie/Freddie maybe we should
blame
Republicans for the banks that sold the toxic sludge to
Fannie/FreddieReplies (2)
10/27/2010 mortgage-losses-build-team-spirit: Pers
yahoo.com//mortgage-losses-build- 2
