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Under the governing agreements, residential mortgage-backed securities (“RMBS”) sponsors are required to repurchase loans that violate representations and warranties regarding the quality of the loans, including the promise that loans were issued pursuant to the loan originators’ stated underwriting guidelines.
Mortgage-Backed Securities Investors Have Recovered Billions of Dollars from Put-Back Claims
Over the last several years, RMBS sponsors have agreed to pay billions of dollars to resolve put-back claims. Several other major RMBS sponsors, including Goldman Sachs (GS), Credit Suisse (CS), Deutsche Bank (DB), Normura (NMR) and Morgan Stanley (MS), have not yet resolved their put-back liability. There is still the possibility of pursuing put-back claims against these entities, provided that investors act quickly.
RMBS Investors Can Unite and Aggregate Their Holdings
In order to initiate put-back claims, investors must satisfy the ownership threshold in the governing agreements, typically, twenty-five percent of the voting rights for the trust. It is not necessary for a single investor to meet the threshold, instead, investors can aggregate their holdings for purposes of making a put-back demand, and many have done so.
MBS Put-back Claims May Still Be Timely, But MBS Investors Need to Act Promptly
While the New York Court of Appeals decision in Ace Securities Corp. v. DB Structured Products, Inc. (“Ace”) will limit the number of trusts for which put-back claims can be asserted, the Ace decision should not eliminate all put-back claims, provided that certificateholders act quickly.
First, a number of Trusts might be covered by a tolling agreement between the trustee and the defendants. Ace expressly recognized the validity of such tolling agreements, noting that tolling agreements are “hardly unheard-of” in connection with repurchase litigation and that there was no such agreement in the Ace case. Ace at 6 & n.2. While the existence of a tolling agreement is not publicly-available information or known to us at this time, the trustee is arguably obligated to disclose this information to a directing certificateholder.
Second, the Court of Appeals decision is premised on its conclusion, that “nothing in the contract specified that the cure or repurchase obligation would continue for the life of the loans.” Ace at 12. According to the Court, defendant’s repurchase obligation was dependent on and derivative of the representations and warranties in the contract, and these “did not survive the closing” of the securitization. There are trusts that contain contractual language different than the trust at issue in the Ace case. Depending on the language in these trusts, the Ace decision may not apply.
Merrill Lynch and Countrywide Repurchase Initiatives
Keller Rohrback currently represents investors who are pursuing repurchasing initiatives involving a large number of mortgage-backed securities trusts backed in whole or in part by Countrywide-originated loans, and a separate initiative pertaining to Merrill Lynch sponsored mortgage-backed securities trusts. Both of these initiatives seek to obtain compensation from Bank of America for losses to the trusts caused by representation and warranty breaches and servicing abuses. For more information about these initiatives, click on the attached Repurchase Memorandum.
As referenced above, we believe repurchase actions on these trusts may still be timely. A number of these trusts may be subject to tolling. Many of the Trusts sponsored by Merrill Lynch also have markedly different language than the contract interpreted in Ace. These trusts have repurchase language that generally provide that “the representations, warranties and indemnification” set forth in the governing agreements “shall each survive delivery of the Mortgage Files and the Assignment of Mortgage of each Mortgage Loan to the Trustee and shall continue throughout the term of this Agreement.” This language makes clear that the representations and warranties do survive the closing of the securitization, and that the cure repurchase obligation would continue for the life of the loans (i.e. the term of the Agreement.)
If you are interested in participating in RMBS put-back actions, or learning more about other mortgage-backed securities claims you may have, we encourage you to contact attorneys Derek Loeser or Dean Kawamoto at 800.776.6044 or via email.
Keller Rohrback has decades of experience successfully representing institutional and individual investors in large-scale, complex cases, with judgments and settlements on behalf of its clients exceeding 18 billion dollars. With offices in Seattle, Phoenix, New York, and Santa Barbara, Keller Rohrback offers its expertise to clients nationwide.