Thursday, October 28, 2010

MORTGAGE & FINANCE: Bondholders want bank to repurchase soured mortgages

NEW YORK — Pacific Investment Management Co., BlackRock Inc., and the Federal Reserve Bank of New York are seeking to force Bank of America Corp. to repurchase soured mortgages packaged into $47 billion of bonds by its Countrywide Financial Corp. unit, people familiar with the matter said yesterday.

A group of bondholders wrote to Bank of America and Bank of New York Mellon Corp., the debt’s trustee, citing alleged failures by Countrywide to service loans properly, their lawyer said yesterday in a statement that did not name the firms.

The New York Fed acquired mortgage debt through its 2008 rescues of Bear Stearns Cos. and American International Group.

Investors are stepping up efforts to recoup losses on mortgage bonds, which have plummeted in value amid the worst slump in home prices since the 1930s. Last month, BNY Mellon declined to investigate mortgage files in response to a demand from the bondholder group, which has since expanded. Countrywide’s servicing failures, including insufficient record keeping, may open the door for investors to seek repurchases by bypassing the trustee, said Kathy Patrick, their lawyer.

“We now are in a position where we have to start a clock ticking,’’ said Patrick, who is based in Houston. Recoveries for her clients, who own at least 25 percent of so-called voting rights in the deals, may reach “many billions of dollars.’’

MetLife Inc., the biggest US life insurer, is part of the group, said the people, who declined to be identified. TCW Group Inc., the manager of $110 billion in assets, expects to join BlackRock, the world’s largest money manager, and Pimco, which runs the biggest bond fund, in the group, the people said.

The group is among investors who are seeking to use misstatements by sellers, such as faulty appraisals, about the quality of loans packaged into securities to force repurchases, the people said.

Countrywide has not met its contractual obligations as a servicer because it has not asked for repurchases and is taking too long with foreclosures, Patrick said — either because of document or process mistakes or because it does not have enough staff to evaluate borrowers for loan modifications. If the issues aren’t fixed within 60 days, BNY Mellon should declare Countrywide in default of its contracts, she said.

Charlotte, N.C.-based Bank of America will “defend our shareholders’’ by disputing any unjustified demands that it buy back defective mortgages, chief executive Brian T. Moynihan said yesterday.

Most claims “don’t have the defects that people allege,’’ Moynihan said on Bloomberg Television, referring to so-called putbacks, in which guarantors or investors in mortgage-backed securities ask to return bad loans. “We end up restoring them, and they go back in the pools.’’

“We continue to review and assess the letter, and have a number of question about its content, including whether these investors have standing to bring these claims,’’ Bank of America’s chief financial officer, Charles H. Noski, said on a conference call with analysts. “We continue to believe the servicer is in compliance with the servicing obligations.’’

The letter covered 115 separate mortgage securitizations, with $105 billion in original balances, from “eight investors purportedly owning interests in these transactions,’’ Noski said.

Jody Shenn Bloomberg News October 20, 2010

1 comment:

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