Concerns that private label investors will swamp bank issuers with repurchase claims because of poor master servicing on the residential bonds are overblown, according to a new report from Credit Suisse.
"We don't think that the repurchase requests will reach elevated levels given the associated difficulties with attaining the minimum bondholder voting rights to assert a claim, as well as the hurdle of proving that breach of rep/warranty resulted in a loss," writes CS analyst Moshe Orenbuch.
Orenbuch adds that historically there has been very little activity "from private label parties given the need for a substantial portion of the ownership of a given trust to obtain the underlying documentation and initiate a put-back."
Recently, PLS investors, including the Federal Reserve Bank of New York and PIMCO, were contemplating suing Bank of America if the company did not repurchase upwards of $40 billion of underperforming mortgage PLS. The bank inherited the exposure on the bonds from Countrywide Financial Corp., which it bought in August 2008.
Investors have accused CFC of being a poor master servicer on the bonds.
