Amid rising losses in mortgage-backed securities, institutional investors in mortgage securities are teaming up to recover their losses, according to Ruth Simon’s Wall Street Journal article, “Mortgage Losses Build Team Spirit.” Investigations by state regulators into the “mortgage mess” and growing awareness of their fiduciary duties to shareholders and retail investors is spurring the spike legal claims brought by institutional investors.
Among the subjects of such suits are mortgage originators that notoriously made nothing-down, no-documentation, no-income-required loans to people who predictably defaulted on their loans. “Robo-signing” and “sloppy practices” by mortgage originators and servicers have made it nearly impossible to document who owes what to whom.
“Investors’ frustration has reached a boil in response to monthly loan losses, unexplainable bond write-downs, stonewalling access to loan files, inequitable treatment of first- and second-lien mortgage loans and ineffective loan modifications,” Jonathan Lieberman, a managing director with Angelo, Gordon & Co., which invests in mortgage-backed securities, was quoted as saying.
Last week, a group of large investors objected to the handling of 115 bond deals issued by affiliates of Countrywide Financial Corp., now part of Bank of America, according to the article. The investor group includes Freddie Mac, Fannie Mae, the Federal Reserve Bank of New York, BlackRock Inc., and Pacific Investment Management Co. (PIMCO).
These institutional holders of mortgage-backed securities are also concerned that loan modifications being pushed by the state regulators will disadvantage them and their investors. “The possibility of a … settlement imposing additional losses for the negligent conduct of servicers upon our retirees has galvanized investors to organize and fulfill our fiduciary responsibilities,” Mr. Lieberman was quoted as saying.
Under contracts that govern mortgage deals, investors must typically muster 25% of the voting rights in order to force the trustee, which is charged with administering the securitizations on behalf of investors, to consider action against the mortgage servicer?and to bring their own action if the trustee declines.
Several Federal Home Loan Banks and other institutional investors have filed securities lawsuits seeking to force Wall Street banks to repurchase mortgage-backed securities. Losses to banks forced to repurchase could reach $55 billion to $120 billion, according to the article.
“That option is typically open to investors who bought their bonds at or near the time of the public offering, but not to those who purchased the securities much later in the secondary market, says Mr. Grais.” Mr. Grais may be referring to the fact claims of those who purchased in the secondary market would be subject to tougher standards of pleading and proof. Under federal securities laws, there is no requirement for plaintiffs to plead and prove fraudulent intent, loss causation and reliance when a claim arises out of a misrepresentation in a prospectus, which they would be required to plead and prove in a Rule 10b-5 claim that applies to the secondary market.
Page Perry is an Atlanta-based law firm with over 125 years collective experience representing investors in securities-related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 30 occasions. Page Perry’s attorneys are actively involved in representing individual, institutional and corporate investors that lost money in mortgages and mortgage-backed investments. For further information, please contact us.