Bondholders Gain Standing to Demand Action on More Mortgages

A group of mortgage-bond holders has expanded to give members stakes of at least 25 percent in more than 3,000 securitizations, potentially putting them in a stronger position to force lenders to buy back soured home loans, lawyer Talcott Franklin said.

The number of deals the RMBS Investor Clearing House now has a big enough interest in to request action by bond trustees has climbed about 30 percent since a July statement by Franklin. The clearing house allows bondholders to coordinate without divulging to each other which securities they own.

The group added three new portfolios Nov. 12 that weren’t included in the most recent total, Franklin said in an e-mail from Dallas that day. A quarter of bond investors in any single deal marks the minimum threshold to force mortgage-bond trustees to grant access to loan files that may help investors prove mortgage sellers should buy back bad debt or take other action.

“The more firms, and bonds, that are in the clearing house, the more likely it is that this issue is decided by the relevant contracts and not by external pressure applied to any member firm or firms,” said Bill Frey, the head of Greenwich, Connecticut-based securities firm Greenwich Financial Services LLC, which is working with the clearing house.

Recent additions include “several substantial foreign investors,” Frey said in a telephone interview.

No Guarantees

The mortgage-bond deals the clearing house is interested in are so-called non-agency securities, meaning they lack government guarantees. Almost 30 percent of loans underlying the bonds are now at least 30 days delinquent, according to data compiled by Bloomberg.

The group Franklin represents owns more than $600 billion of non-agency securities. The group said in July letters to bond trustees that it had more than 50 percent participation in about 900 deals, a threshold that can give them the power to fire trustees.

The clearing house now covers investors holding 50 percent of 1,325 deals, Franklin said in the e-mail.

Participants in Franklin’s clearing house include BlackRock Inc., Pacific Investment Management Co., Fortress Investment Group LLC, Fannie Mae and Federal Home Loan Banks, people familiar with the matter said in September.

To contact the reporters on this story: Jody Shenn in New York at jshenn@bloomberg.net

To contact the editors responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net

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