“A hasty and ill-formulated legal settlement may harm the investors of mortgage-backed securities, namely retirees, municipalities, government entities, state pension funds, retirement systems, universities, and charitable endowments. Chris Katopis, the Washington-based trade group’s executive director, said today in an e-mailed statement.
Attorneys general from all 50 states said yesterday they have jointly opened an investigation into whether lenders and mortgage companies falsified documents in foreclosure proceedings. Home-loan servicers, which manage outstanding mortgages, including Ally Financial Inc., Bank of America Corp. and JPMorgan Chase & Co. have suspended some foreclosures or evictions while they review paperwork.
“It is important that any legal settlement require large banks and servicers to accept the legal responsibility for their actions,” Katopis said. “Hasty action” by states may punish investors who aren’t “the responsible parties,” the group said.
The association, formed after a record tumble in the prices of U.S. mortgage bonds without government backing, issued a statement on Oct. 1 calling for securities trustees to probe whether loan servicers are doing their jobs “properly” and “audit and review the resulting losses to hold servicers accountable for negligence.” The group also then said that trustees should make sure that loans that were sold to mortgage- bond trusts without the proper documents get repurchased.
“The solution to our national foreclosure crisis includes the government shining light on any alleged misconduct, requiring the big servicers to comply with their contractual obligations, and when necessary, to buy back deficient mortgages,” according to the group’s statement today.
Bank of America earlier this month won the dismissal of a lawsuit by hedge funds managed by Greenwich, Connecticut-based Greenwich Financial Services LLC sparked by the bank’s 2008 settlement with a group of state attorneys general over Countrywide Financial Corp.’s lending practices, according to an order filed yesterday.
In the suit, which sought class-action status, Greenwich Financial argued that by agreeing to change the terms of 400,000 mortgages mostly owned by securities investors, Bank of America was making bondholders pay for the misdeeds of Countrywide, which it bought in 2008. Contracts for the 374 mortgage-bond trusts at issue also required the bank to repurchase any modified loans, according to the suit.
New York state Supreme Court Justice Barbara Kapnick ruled that the plaintiffs failed to meet the preconditions required under the trusts’ contracts for bringing a suit, including the support of 25 percent of certificate holders. Greenwich Financial is studying the opinion and will decide whether to appeal, Bill Frey, the firm’s head, said yesterday.
“If the investors do not band together, then they are 100 percent at the mercy of the large banks,” he said today in an e-mail.
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