Association of Mortgage Investors (AMI) | “Any truly viable solution must address the defective mortgage loans”

Question: How did they defraud the investors without defrauding the borrowers?


For immediate release
Contact: 202-327-8100
Wednesday, February 16, 2011

AMI Commends the Administration GSE Reform White Paper as a Good Start;
Private Capital Will Not Return to the Market without Transparency

Washington, D.C. – The Association of Mortgage Investors (AMI) publicly commends the Administration on the release of its white paper, Reforming America’s Housing Finance Market.
AMI acknowledges that it presents a series of important reforms to bring back the country’s housing opportunities. At today’s House Financial Services Subcommittee hearing, the Administration witnesses state important goals:
“The return of private capital is particularly important given that today, Fannie Mae, Freddie Mac and Ginnie Mae collectively insure or guarantee more than nine out of every ten new mortgages . . . “1
“We must revive the PLS market [Private Label Securities] . . . “.2

We, however, see a number of omissions which will frustrate its goals and ultimate success of returning private capital to the market. Accordingly, the AMI and its members are ready and willing to engage policy-makers to create a truly viable plan that offers long-term, sustainable, and effective solutions. The timely resolution of the foreclosure crisis is in the best interests of homeowners and fixed income portfolio investors reliant upon returns from mortgage-backed securities.

“The future and revitalization of the housing finance market is tied to the past legacy of what happened to precipitate the crisis,” remarked AMI Executive Director Chris Katopis. “Any truly viable solution must address the defective mortgage loans (many of which are a direct result predatory lending practices) which still reside in pools and trusts across the country and plague investors,” he continued.

History of the Problem. During the peak of the housing market in 2005 – 2007, banks originated mortgages and put them into pools (also referred to as “Residential Mortgage-Backed Securitizations” or “RMBS”). These pools were sold to mortgage investors, namely retirees, government entities, state pension funds, retirement systems, universities, and charitable endowments. In order to facilitate this process and get mortgage investors comfortable with making these types of investments, the banks made promises (or “representations and warranties”) about these mortgage loans. These “reps and warranties” may include a number of safeguards, including for example that the banks did not violate state laws including anti-predatory lending and unfair and deceptive marketing statues. It has become evident that many of these representations were not true (such as verifying a borrower’s income and determining the ability of a borrower to repay the mortgage). In order for the housing market to recover and for mortgage financing to expand, the banks responsible for writing the loan warranties must fulfill their contractual obligation and repurchase loans that are defective under the terms of these warranties.

Today ample research confirms that the loans originated during 2005-2007 were often materially defective with respect to the reps and warranties:

  • A complaint involving one of JPMorgan Chase & Co subsidiaries finds over 80% of the loans in certain deals breached representations.
  • Fitch reviewed 45 early defaulting loans and found that the “result of the analysis was disconcerting at best, as there was the appearance of fraud or misrepresentation in almost every file”
  • Recovco, a mortgage consulting firm, has reviewed several thousand loan files and has found that over 50% of those files reviewed in the 2006-2007 vintage have material breaches of representations and warranties.

Part of the problem is that the entities holding the evidence of breaches, or the mortgage files, have been unwilling to follow their contractual obligations and release documents to trustees and beneficiaries. This is evident in two recent lawsuits where trustees are suing a major servicer to access mortgage loan documentation that trustees are entitled. “Promises made must be promises kept. When parties ignore their contractual obligations and worse, block the sharing of documentation, mortgage investors can only assume the nation’s consumers and state institutions face a significant problem. Sunlight is the greatest disinfectant; let’s get the documents and have the facts,” remarked Katopis.

As Congress reviews the proposed Administration plan and other recommendations, the issue of defective loan put backs must remain high on the agenda, as it impacts a range of our institutions back home, such as state entities. “It is the greatest hope of mortgage investors that any GSE Reform plan carefully consider the impact on the soundness of state pension, retirement systems, life insurance, and medical savings plans,” noted Katopis.

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Private Capital Will Not Return to the Market Without Transparency

7 Responses to “Association of Mortgage Investors (AMI) | “Any truly viable solution must address the defective mortgage loans””
  1. Pamela says:

    Breach of contract is still breach of contract which is still illegal.If it was the home owners that breached the contract and did so knowingly we would all be in jail,end of statement.Why is it different for the banks than it would be for us.We all have the same rights and we should all have the same punishment.To perpetuate bad behavior and illegal behavior does not send the correct message,they feel like they are entitled and enabled,because for years they were allowed to get away with this and nobody ever questioned it.We just walked away from our homes.If all of us do not get up and do something drastic right away they will continue on in the same vein.Stand up and fight show you have courage and perseverance and your willing to go to the front lines with this.Iran& Iraq are not the only battles being waged.

    • losing my home in florida says:

      thank you pamela , you said what we all think. the problem is we know there is a problem but for thebanks its business as usuall. i still have wells fargo calling me. there should be a call for a mortitorium on all home mods and foreclsoures until we find out what is goingto happen. so what are they goignto do now fast track us into home mods at the frauduleny price , or foreclose on us illegally. hope someone can get through to them. even with all this controversy i sent my paper work financials to wells fargo fed ex, htey called me a few days ago to aske where the paper ork was, exucse me?????

  2. John says:

    YOU must sue now..

    Waiting on help is a mistake. Bottom line is they will take care of each other and say or print whatever keeps you satisfied and quiet until they can get all their paperwork in order, then look out!

    Hit back with more balls than they have.

  3. dandiener1 says:

    Coming after the Mortgagors?

    First, find out if their mortgages or deeds to secure debt were “securitized.”

    My understanding of Securties Laws tells me that any “investor” puts his or her principal at risk when hoping for the “gain” associated with owning the “security.” That means the insitutional investors had responsibility to untertake “due diligence” before putting their principal at risk by “investing” in the “securites instrument.”

    I don’t think that the definintion of a “secuirity” sold by Wall Street stipulates that the “equity invested is ‘secure’.”
    In fact, salespeople are instructed to inform investors that the “investment” offers no guarantees.

    That said, the investors should be required to “eat the losses.” If they were duped by others, it was not the mortgagor… who most likely was also duped at the closing table. If the investors are to recover anything, it should be after they have instituted and succeeded in suits against the “sellers of the securities.”

    The “investor” at the closing table, is supposedly the original lender. If that lender colluded with MERS, Wall Street, and other “investors.” They should be held liable for misleading mortgagors, and suitable civil and criminal penalties (including imprisonment) should be assessed by an honest judicial system.

    Mortgages or Security Deeds created at the closing table for “Re-Fi”s should be required to honor the “satisfaction of debt letters” issued by earlier “non-MERS” lenders.

    Any party that is complicit with this massive fraud should not be able to “claw back” “good title” and monies paid by the original (honest) lender. Such is the cost and risk of doing business as a provider of financial services or as any other entrepreneurial venture.

    Above all, if clear, unclouded title to property existed prior to closing, the mortgagor’s title interests should be rightly restored in such a manner that Title Insurance companies can once again issue “gurarantees.”

  4. “Question: How did they defraud the investors without defrauding the borrowers?”


  5. Elyse Del Francia says:

    A suggestion!!

    Have every County Assessors re assess every single home in their counties…then the banks are forced to write new mortgages, at 2% interest, for 10 years…

    That’s where I would like to see this mess go…OR…all house with MERS are FREE!!!

    It could happen but I doubt it 🙂 WIshful thinking…

    • Catherine Mc Manus says:

      Your suggestion is great- everyone in the foreclosure nightmare turns it into a beautiful dream.
      I do not believe anyone will receive a “new mortgage” unless they can refi with another Bank or Mortgage Co. Not many fols qualify to refi-especially those underwater.
      My County Property Appraiser HAS done “current appraisals” for Tax year 2011.
      Property values are now reflecting the “true value” hahhahhaha less than I purchased 10 yrs. ago.
      No where near my Refi-price that was DOUBLE the orginal price I paid. 2006-
      yes I was bullied to REFI-Subprime -told I would be stupid not to take advantage of the boom
      My taxes will be much less for 2011.
      These re-appraisals will have a huge effect on people/realtors doing neighborhood comps too.
      My Tax Assessment value decreased $15,000., (whoopie -lower tax bill)
      and Market Value decreased by 60 PERCENT !
      MORE UNDERWATER if I wanted to sell but I intend to be here for the rest of my life.

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