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Legal Case Challenges NPL Sales

MAR 19, 2013 1:51pm ET
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WE’RE HEARING…that some in the mortgage industry are finding recent legal developments are further complicating and even potentially changing business decisions involving sales of nonperforming loans from the private-label residential mortgage-backed securities market.

That is because the pressure for servicers to prove they are advocating for investors as well as themselves in business decisions involving nonagency securitization collateral could be bumped up another notch.

A case in point is an investor lawsuit filed against Nationstar, which recently resulted in a New York State Supreme Court order for the company to stop some nonperforming loan sales out of real estate mortgage investment conduits temporarily.

As a March 14 report on this by Credit Suisse researchers Chandrajit Bhattacharya, Marc Firestein and Gaurav Singhania put it, “NPL sales…are undoubtedly a positive event for the servicer, both for recouping advances as well as reducing costs.”

But KIRP LLC, a holder in six 2005-2006 RALI trusts originally issued by RFC, alleges that the note sales are not in investor interests in terms of generating the best return for them, and are not explicitly allowed for in the pooling and servicing agreements.

“Should the court allow these sales, any REMIC that does not bar these sales could very well see NPL sales used for loss mitigation,” the researchers said in the report. But a ruling also potentially “could set precedent for required hurdles an NPL sale must clear in order to be considered “in the best interest of noteholders.”

Now to a certain degree, interests are naturally aligned in the case of the latter and it makes sense. If you want to sell anything to anyone or keep them as a client, you should be somewhat considerate of their interests or you may never narrow the bid-ask spread enough to complete a deal, or get any repeat business. As the havoc the downturn wrought on the private label mortgage-backed securities market shows—if you burn clients or customers too badly, you lose them.

But it begs the question as to where the line should be drawn between the investor’s best interests/bottom line and the servicer’s best interests/bottom line/discretion in this situation.

The likely resolution to this, as the report suggests, is something that specifies what servicers would need to do to prove they are acting in the investor’s best interests. But it takes two to tango, so the servicers’ interest and financial considerations also should be a factor here, as well as in future PSAs.

Bonnie Sinnock is managing editor of National Mortgage News and editor of Origination News. She has been covering the mortgage industry since 1995.

Comments (2)
Oh, investors should take their money and run. These notes are the same bogus robo signed fraudulent notes that came from the banks like Deutsche Bank, Washington Mutual, Long Beach, etc.. Eight years a note couldn't be produced, and fraudulent assignment , and these NPLs are getting them from Orion Financial Group from a M.E. Wileman . ( remember Citibank case?) Land records not signed, from the supposedly owners, sold with robo signed documents . I can tell you so much more. This is not in the best interest of investors or the people who have tried endlessly to work out their mortgages . Fraud is fraud, hiding it doesn't make it different and notes without the proper land records endorsed are unsellable.
Posted by | Wednesday, March 20 2013 at 7:33AM ET
@ Ms. Tyson: Your comment strikes the bell of truth. This Mike E. Wileman is absolutely out of control. I have a case against him wherein he caused to be uttered an assignment to Citibank CMLTI trust, and listed Citi as the trustee. Well Citi is NOT the trustee of that trust at all, and to make matters worse, the loan in question is not in that loan pool at all, and yes, it is a trust set up for "re-purchased" loans AKA unsecured bad debt notes, as stated in that trust agreements and contracts.

Another case I'm helping with, is absolutely horrific. A house was taken in forclosure and sold at trustee sale and the loan for that house was not in the trust that the foreclosure mill law firm stated it was ether. The particular trust has over 17360 loans within its mortgage pool, only eleven of those loans had the same zipcode and state as the subject loan, but none of the eleven were that particular loan, now that case is being decided by the Ninth Circuit Court of Appeals.

This website may not be a great place to post our comments as it is a site mainly for the "banker lender" crowd, who only see dollar signs before their eyes, and NOT real families whom their actions have allegedly hurt. They do not understand the damage they have done to Americas families, nor does it appear that they care as long as they get "their cut" of the action.

I may seem a little harsh on banker lenders, but in reality they should all consider what it is they are doing to get their cut of the action. I believe they are very intelligent, and they can earn a great living by jumping ship and start fighting for the very people that most of them have harmed by their interaction with companies such as GMAC, Ocwen, NovaStar, and all the other predators...
Posted by | Tuesday, June 10 2014 at 9:17PM ET
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