Consumer Law

Tranche Warfare Declared

By Alan White

HousingWire reports that investors are suing Countrywide [complaint here] in its role as mortgage servicer, objecting to Countrywide's settlement with state regulators whereby it will modify home mortgages to reduce interest and principal.  While the modifications can be justified in many cases on the basis of net present value calculations and the best interest of investors (foreclosures being a losing proposition in the current market), the investors claim is that Countrywide is foisting the losses attributable to Countrywide's misdeeds in making the loans onto them.  While investors, originators and servicers battle over who has to bear the inevitable losses, other servicers will see this as another reason not to modify mortgages.

It is undoubtedly true that many mortgages are subject to fraud, deceptive practice and other claims and defenses, in addition to having lost value due to home price declines.  Parsing out losses is always a problem in a debt crisis, and Congress may need to act to allocate losses wholesale, rather than waiting for the case-by-case allocation of losses for every mortgage through a series of similar lawsuits.   

Full post as published by CL&P Blog on December 02, 2008 (boomark / email).