Foreclosure Defense Florida

Servicer/Mortgage Backed Security Investor Relationship Imploding?

The foreclosure crisis continues unabated and will only get worse as economic conditions continue to decline in the United States.   The foreclosure mediation programs starting across the state risk being dismal failures because the lender representative, who is supposed to have “full settlement authority”, really has only a very narrow range of options to offer the borrower.   Often these narrow few options are totally out of synch with the economic or practical realities such as when Indymac will refuses to allow an 84 year old sick and disabled woman to stay in her home under a reduced payment when they will lose at least half the balance of the loan if they take it back or when a servicer fails to accept a reasonable modification that is just a few dollars shy of their pre-programmed guidelines or when a servicer fails to accept a short sale because they’re holding out for an absurd sales price that they will never, ever receive.


Later today I’m going to post an excellent lawsuit where a group of investors is suing a group of mortgage trusts alleging fraud in the sale of the deal to the investors.   Previously I’ve posted a lawsuit where other investors were suing the servicer for failing to act prudently in managing the mortgage payments and other obligations.   The point of all of this is that whole system is broken down very badly.   Individual attorneys like myself and others are reporting the absurd conduct of the attorneys and clients (how can attorneys pursue cases in circuit courts when they have no contact with their clients?), but increasingly these issues are going to have to be addressed at the much bigger levels of the investors and servicers…..the bottom line is the investors who bought these “shitty” mortgage deals are the ones holding the bag and their servicers and their attorneys are not acting in the investor’s best interests to proceed with these cases.

There are two avenues where these wrongs will start to be addressed:

1. Continued Institutional Litigation

(From the website subprime shakeout)

Heard on this Street this week: the super-secret Syndicate of MBS Investors discussed previously is gaining momentum.   A confidential source has informed me that some of the largest institutional investors in mortgage-backed securities have now joined the group,  bringing the amount under management to  “hundreds of billions of dollars in MBS investments.”   The source further informed me that this  number is expected to swell to a “jaw-dropping dollar figure.”

As discussed before, the Syndicate hopes to amass enough representation in enough securitizations throughout the country to take over those trusts pursuant to the terms of the respective Pooling and Servicing Agreements (PSAs).   These contracts often require 25% class ownership to petition the Trustee to take action and 50% ownership to fire the Trustee or Master Servicer.

Once the Syndicate has reached critical mass, it reportedly will approach the Trustees of a number of deals to present evidence of Servicer misconduct and request the Trustee to take action to remedy Servicer breaches (including firing the Servicer).   If the Trustee does not comply, the Syndicate plans to fire the Trustee and Servicer, and install friendly institutions in their place.   At that point, the Syndicate would likely pursue two major courses of action: 1) take over the servicing of the deals and begin servicing the loans in the trust in accordance with bondholder wishes (including liquidating or modifying loans in default, depending on which option makes the most economic sense over the long term) and 2) pursue remedies against originators for losses caused to the pool.   This second prong would involve pouring over loan files obtained from the prior servicer to look for breaches of reps and warranties in the origination and underwriting of the loans.   This will almost certainly lead to a jump in mortgage litigation seeking to compel originators to buy back or repurchase loans that were improperly originated (to the extent these originators are still solvent).
Again, loan files are critical, because they reveal the fundamental characteristics of each loan and the underwriting determinations made in the approval of such loans.   Though certain plaintiffs have recently made strides towards forcing servicers like Countrywide to turn over loan files (see also  Order Granting Motion to Compel in  Syncora v. Countrywide), the acquisition of these all-important documents remains a difficult proposition.   Investors are increasingly coming around to the idea that the only way they will be able to obtain these files is by force–namely, firing Servicers and taking over their duties and documents.

One Comment

  • ForeclosureHamlet says:

    The loan files aren’t to be trusted!

    Prior to my own personal loan from early 2007 I remitted all financial documents, years of tax forms, months of paycheck stubs and bank statements, etc. Yet, the loan was listed in the prospectus which was filed with the SEC as a SASI (stated income stated asset) loan. Then the documents I received back about a year after my QWR request from my servicer shows about $6,000/month in monthly income HIGHER than what I was earning.

    I even have emails back and forth with the mortgage broker where she lists the documents required and then later where she wrote, “We have almost everything but still need you to provide …..”.

    It’s truly mind-boggling; the mess that’s been created.

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