Category Archives: Real estate

As readers may recall, the American Securitization Forum came out, in what it no doubt thought was guns-a-blazing style, to attack critics of securitization abuses. In particular, the ASF was taking aim at theories of the sort advanced on this blog, and later in Congressional hearings and in a Congressional Oversight Panel report, that the notes (meaning the promissory note, meaning the borrower IOU) in many cases, if not pervasively, had not been endorsed and conveyed as required by the pooling and servicing agreements, which are the contracts that govern mortgage securitizations. In other words, the industry had committed in contracts to investors to take some very particular steps to assure that the securitization complied with a host of legal requirements to assure that the investors got the benefits of the cashflows from the mortgages, and then proceeded to welsh on their deal.

Normally, this would not be such a big deal. Contracts are often breached; the usual remedy is to get a a waiver, which sometimes might involve a payment of some sort. But securitizations are particularly inflexible agreements. From the abstract of a 2010 paper by Anna Gelpern and Adam Levitin:

Bottom line: even thought the Supreme Court ruling in this Massachusetts case, Ibanez, was narrow, it still represents a major blow to the securitization industry, specifically, the argument made by the American Securitzation Forum and securitization law firms that have liability on opinions they provided on residential mortgage securitizations. It is also certain to fuel more challenges in court based on failures of the parties to securitizations to adhere to the requirements of their contracts.

As we’ve suggested, a not-well-recognized effect of the widespread publicity on robo-siging abuses and more recently, the widespread failure of securitization industry participants to adhere to their own agreements is more pushback in the courts. It takes a while for new information to trickle into courtroom strategies, but as the abuses get more press, it […]