Excuse me BoA, those aren't your loans to modify, says investor in lawsuit

[RB TexLa]

Investor Sues to Block Mortgage Modifications
A lawsuit against Bank of America claims states and banks will short bondholders $8.4 billion and damage the market by cutting home payments
By Mara Der Hovanesian

The battle over the mass modifications of troubled mortgages has begun in earnest. On Dec. 1, William Frey, a private investor in mortgage-backed securities, filed a lawsuit in New York State Supreme Court alleging that the proposed modification of some 400,000 home loans originally underwritten by the defunct lender Countrywide Financial is illegal.

The lawsuit , which seeks class-action status, was filed against Bank of America (BAC), which bought Countrywide in late 2007. It argues that most of the Countrywide loans are not Countrywide's or Bank of America's to modify, but rather are owned by trusts that bought them through securitization—the process of financing home loans through the public markets by parceling them out to investors.

Frey says that BofA's modifications (BusinessWeek.com, 10/23/07) will short bondholders $8.4 billion by reducing borrower payments. While those loan adjustments may help to keep struggling borrowers in their homes today, Frey says those alterations run the risk of permanently damaging the secondary market for housing finance.

"I am an advocate for investors' contractual rights," says Frey, 50, in an interview. He has publicly argued since March that loan modifications (BusinessWeek, 11/26/08) are against contract law, and has threatened to sue banks—despite, he says, receiving pressure to back down from Washington. "Investors' voices have been muted in this debate because they speak of an inconvenient truth: Current solutions sacrifice the long-term viability of this nation's housing finance system for short-term political gain. No matter how noble the intent, it is not in the interest of the United States now, or in the future, to tell its citizens and the world at large that U.S. contract rights may be bent with the political winds."


http://www.businessweek.com/bwdaily/dnflash/content/dec2008/db2008121_173068.htm?campaign_id=yhoo

[DJ13]

1. Well then those bond holders can forget BofA having the authority

.....to file foreclosure papers on delinquent mortgages then.

Each of you bond holders can get together and try to figure out how to put each mortgage back together from the thousands of tiny pieces they were broken into so YOU can handle the foreclosures.

Sounds fair, right?

[RB TexLa]

3. No, BoA administers the loans. They contractually have the responsibility to collect the payments

and to foreclose if necessary.

[DJ13]

4. There have already been courts denying foreclosures due to there being no

....way for the financial company to prove they have a legal right to foreclose since they arent capable of putting the deeds back together from the broken up pieces repackaged into those bonds.

This is the other side of the same argument..... just WHO owns WHAT.

These bond holders cannot say that if BofA is reworking a mortgage to prevent a foreclosure that their bond actually has anything to do with that individual property.

[RB TexLa]

6. But the institution administering the loan can bring the proper paperwork back to the court after

ordered to do so and carry out their foreclosure. It's not a matter of them not being able to do so. It's a matter of having the everything in order.

[DJ13]

7. Say you hold 100 of these bonds

Exactly which properties do those bonds represent?

[RB TexLa]

10. Say you hold 100 school bonds

Exactly which desks and computers do they represent?

They don't represent specific properties just as a school bond doesn't represent specific desks. That is not what the lawsuit claims nor what any court has attempted to claim in foreclosure proceedings. I do not go down to the DISD office to collect the interest on my bonds, JP Morgan does that for me. This challenge does not involve the administrator's obligation to administrate the loans but their ability to greatly alter the return on the bonds.

[marketcrazy1]

2. OOP`s

so much for modifying mortgages!! so that coming!

[depakid]

5. Well, we knew that was coming....

There'd be some ideological vultures out there looking to thwart deals for the common good who wouldn't be bought off....

[Hassin Bin Sober]

8. $8.4 Billion? Bah, that's petty cash. Put it on the tab!

[gravity]

9. He has a good case

Unless those trust are directly affiliated with BoA.

Also if the cash flows from modified loans are greater than letting them go default, then it might not be a bad thing for the investor.

[metapunditedgy]

11. I read an article today claiming that the credit default swaps

were so leveraged that some folks who own them would actually make more money if the mortgages (and mortgage providers) failed. I don't know if that's true or even reasonable, but I'll bet in any case that there's more to this story...

[bertman]

12. I think that's the case only if companies like AIG remain afloat.

[craiga86]

13. wow

The bad guy in this particular case doesn't seem to be BoA, but the little man. This is the perfect framework for encouraging other banks to help people re-adjust their mortgages so that we can get through this recession.

Thanks BoA for your efforts to fix the backbone of this economy.