I’m actually surprised it took this long. As more and more banks announced they were getting more and more aggressive on loan modifications, it seemed the investors in these loans were being just a little too silent.
We’ve talked a lot about the investor “issue” when it comes to loan mods; that so many subprime loans were pooled and sold into the broader markets, making it difficult to modify the loans. Banks like JP Morgan and Citigroup’s modification programs are focused for the most part on loans that are on their own books and were not sold off.
But the massive Countrywide deal with several states attorneys general to do thousands of modifications was bound to hit a snag with investors, and now, according the Wall Street Journal, it has. The paper reports that one such investor in mortgage-backed securities, a Mr. William Frey, is the lead plaintiff in what he hopes will be a class action lawsuit challenging the $8.4 billion Countrywide settlement (Countrywide of course now owned by Bank of America , which is handling all those modifications). The settlement requires BofA to modify about 400,000 loans, the bulk of which are investor-owned.
It all comes down to who should pay for the big bad mortgage mess. BofA claims Countrywide’s agreement with investors allows modifications of defaulted loans, while the lawsuit claims Countrywide has to buy back any loans that it modifies.
To be honest, I think both sides are wrong and both sides are right and frankly they should split the losses right down the middle. The lenders and servicers did an egregious job underwriting the loans, handing them out to any borrower with an outstretched hand, but the investors on in turn turned a blind eye to what they had to know was a risky bet. Let them all suffer!
As for all those Wall Streeters now out of work, I suggest you all go to law school.
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