4th Sept 2011:
The US mortgage market continues to be a terrible mess. As court rulings continue to pound on the rights of mortgage lenders to foreclose a mortgage where the mortgage had been sold, obviously without any notification of the mortgagor, the recent news about Federal Housing Finance Authority, the conservator for Fannie Mae and Freddie Mac, only contributed to questions as to whether all that happened over the 35 years of RMBS in the country was sans any rule or direction. Or, is it just the persecution of mortgage lenders in the aftermath of massive mortgage defaults? The names against whom FHFA has filed the lawsuits includes the who's who of mortgage origination and investment banking in the country. The lawsuit papers are available on FHFA site here.
For example, the complaint against JP Morgan, running in 277 pages, alleges that the defendant "falsely represented that the underlying mortgage loans complied with certain underwriting guidelines and standards, including representations that significantly overstated the ability of the borrowers to repay their mortgage loans." It is notable that JPM, including the Wamu transactions, is one of the largest sellers of RMBS to Fannie Mae and Freddie Mac: "Between September 7, 2005 and September 19, 2007, Fannie Mae and Freddie Mac purchased over $33 billion in residential mortgage-backed securities issued in connection with 103 securitizations sponsored by J.P. Morgan Acquisition, EMC, Washington Mutual Bank WaMu Securities, and Long Beach Mortgage Company.
In the meantime, foreclosure actions by mortgage lenders continue to be face litigation all over the country. In particular, MERS-registered mortgages have been facing adverse rulings in different states. In NY bankruptcy ruling, in Bank of New York vs Silverberg ruled against MERS's rights to foreclose a mortgage. The text of the ruling is here. In fact, on the site of MERS, a long and running list of litigation in different states is maintained.
Apparently, there is no immediate halt to either the travails of the mortgage borrowers who cannot find a cost convenient lawyer to defend them, or mortgage lenders who would face armtwisting for lawyers for settlements. Either way, it is gala time for the lawyers.
[By: Vinod Kothari]