Future mortgage-backed securities repurchase disputes could go through independent third-party reviews and possibly binding arbitration as part of model principles for them released by the American Securitization Forum Tuesday.
The third-party would review the loan files and issue a recommendation. In the event of a disagreement on the recommendation, issuers and investors could resolve it through binding arbitration.
Other key aspects of the model require that a third-party would have to conduct the review on a loan-level basis, said ASF executive director Tom Deutsch. Also, the reviewer's access to the loan files would be subject to confidentiality agreements.
In addition, “Investors should have, through actions of the trustee, abilities to communicate with other investors in the transaction if they believe the third party needs to be replaced for whatever reason,” Deutsch said.
When asked how agreements in the two private-label new-issue residential MBS deals done since the downturn compared to the model, Deutsch noted that the two transactions done since 2008 had “some variations of this independent reviewer.” However, “the mechanics for the repurchase were structured differently” to accommodate accounting-related concerns specific to the deals, he said.
