Two days ago I wrote an article titled “Just what does the mortgage mess mean?” In it, I forecast that lawsuits would be forthcoming from a number of affected individuals and groups, including investors who’d bought securitized mortgages that had been inadequately and/or fraudulently documented, processed and issued.
Guess what happened today?
HOUSTON, Oct. 18 /PRNewswire/ –Today, the holders of over 25% of the Voting Rights in more than $47 billion of Countrywide-issued RMBS sent a Notice of Non-Performance (Notice) to Countrywide Home Loan Servicing, as Master Servicer (“Countrywide Servicing”), and to Bank of New York, as Trustee, identifying specific covenants in 115 Pooling and Servicing Agreements (PSAs) that the Holders allege Countrywide Servicing has failed to perform.
The Holders’ Notice alleges that each of these failures has materially affected the rights of the Certificateholders under the relevant PSAs. Under Section 7.01 of the PSAs, if any of the cited failures “continues unremedied for a period of 60 days after the date on which written notice of such failure has been given … to the Master Servicer and the Trustee by the Holders of Certificates evidencing not less than 25% of the Voting Rights evidenced by the Certificates,” that failure constitutes an Event of Default under the PSAs.
In a previous release, the Holders emphasized their intent to invoke all contractual remedies available to them to recover their losses and to protect their rights. Kathy Patrick of Gibbs & Bruns LLP, lead counsel for the Holders, emphasized that the Holders’ notice does not seek to halt loan modifications for troubled borrowers. Instead, it urges the Trustee to enforce Countrywide Servicing’s obligations to service loans prudently by maintaining accurate loan records, demanding the repurchase of loans that were originated in violation of underwriting guidelines, and compelling the sellers of ineligible or predatory mortgages to bear the costs of modifying them for homeowners or repurchasing them from the Trusts’ collateral pools.
There’s more at the link. Bold print is my emphasis.
Folks, this is only one legal step, a preliminary to a lawsuit from a single group of investors, issued against a single bank (well, two, in the sense that Countrywide – which originally issued the securitized mortgages – is now owned by Bank of America, which inherited the former’s legal liabilities as part of the purchase). This single lawsuit might involve as much as 47 billion – that’s B for BILLION – dollars. There are hundreds, if not thousands, of similar groups here and around the world, all of whom are going to want to recover their investments in fraudulent and/or misrepresented securitized mortgages. Most of them can be counted on to pursue similar legal steps. Anyone care to guess just how high the total amount involved may go? If you guesstimate in the trillions, I won’t disagree with you.
And the fall-out’s just beginning . . .
Peter
This bids fair to destroy the US economy. My understanding is that every one of the large, most prominent banks, are in this boat. JP Morgan, Chase, Bank of America, etc., are on the hook for this nonsense.
This is the sort of thing you get when you turn America's business world over to MBA grads from places like Harvard and Wharton. They are imaginative, but also, in the long run, deadly to an economy.
Quartermaster