Mortgage Servicing Fraud
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Hey Countrywide - payback!!!

Countrywide Sued by Fund Over $8.4 Billion Loan Deal (Update1)

By Patricia Hurtado

Dec. 1 (Bloomberg) — Countrywide Financial Corp., the home lender acquired by Bank of America Corp., was sued by Greenwich Financial Services Fund over claims an agreement to reduce payments on mortgages by $8.4 billion would hurt investors.

The hedge fund claims investors will be harmed by Bank of America’s settlement, reached on behalf of Countrywide, with 15 state attorneys general. The value of trusts that bought 400,000 mortgages will decline under the deal, the fund said.

In the proposed class action, or group lawsuit, the Greenwich, Connecticut-based fund demands a declaration that “Countrywide must purchase at par every mortgage loan that it sold to any of the 374 securitization trusts,” David Grais, a lawyer for the fund said today in an e-mailed statement. Grais said Countrywide could owe $80 billion to the trusts.

“Countrywide plans not to absorb the $8.4 billion reduction in mortgage payments itself, even though it was Countrywide’s own conduct of which the attorneys general complained,” the fund said in the complaint filed today in New York State Supreme Court in Manhattan. Under the settlement, the mortgage lender would “pass most or all of that reduction on to the trusts that purchased mortgage loans from Countrywide,” the fund said in the complaint.

Bank of America reached the settlement in October with 15 state attorneys general. The bank didn’t admit or deny any wrongdoing under the accords. Shirley Norton, a Bank of America spokeswoman, didn’t immediately return a voice-mail seeking comment on today’s complaint.

374 Securitization Trusts

Grais said in his e-mail that the hedge fund is seeking a declaration that “Countrywide must purchase at par every mortgage loan that it sold to any of the 374 securitization trusts.”

Countrywide must change at least 50,000 mortgage loans between today, when its modification program starts, and March 31, he said. The lender has said it may modify as many as 400,000 loans, Grais said.

“We believe that the average unpaid principal balance of these loans is approximately $200,000. If so, and if the court grants the declaration we seek in this complaint, then Countrywide (and its parent Bank of America) would be liable to pay the trusts approximately $80 billion for the loans it modifies,” he said.

The case is Greenwich Financial Services Distressed Mortgage Fund 3 v. Countrywide Financial Corp., New York State Supreme Court (Manhattan).

To contact the reporter on this story: Patricia Hurtado in Manhattan at pathurtado@bloomberg.net

 

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Investor Sues to Block Mortgage Modifications

http://www.businessweek.com/pdfs/2008/1201_complaint.pdf

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DistressedMortgageFund?
Now, let me get this straight. 
The Plaintiff here is: Greenwich Financial Services Distressed Mortgage Fund 3

As they say, it's ALL in a name but a hedge fund with a name like this can't be up to anything good.  How would they know which CDOs to put in this fund if they weren't in cahoots with servicers manufacturing defaults?  Sounds like one of those "special" funds where they speculate with credit default swaps and make lots of money on mortgage defaults.  This name just looks like a big red flag.
So, Mr. Plaintiff, how exactly does the Distressed Mortgage Fund make money? 
 

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DMF?
The suit was filed in New York state supreme court by Greenwich Financial Services Distressed Mortgage Fund 3 in Greenwich, Conn., which resolves distressed mortgages.

The fund represents dozens of insurance companies, banks, endowments and sovereign wealth funds that own securitized mortgages sold by Countrywide Financial, fund owner William Frey said in an interview. http://www.financialweek.com/apps/pbcs.dll/article?AID=/20081201/REG/812019971

These distressed mortgage funds have become extremely popular in past couple years with even MBS godfather Lewis Ranieri getting into the act. Would be very interesting to know which servicers they employ as well as fund's CDS trading activity.  The complaint names two series of Countrywide securitizations, so my guess is that the usual hedgie subprime shorting activity has been going on, which would certainly be jeopardized by mods.
http://www.bloomberg.com/apps/news?pid=20601087&sid=avQ43Pnve5Z8&refer=home

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Moose
DistressedMortgageFund? wrote:
Now, let me get this straight. 
The Plaintiff here is: Greenwich Financial Services Distressed Mortgage Fund 3

As they say, it's ALL in a name but a hedge fund with a name like this can't be up to anything good.  How would they know which CDOs to put in this fund if they weren't in cahoots with servicers manufacturing defaults?  Sounds like one of those "special" funds where they speculate with credit default swaps and make lots of money on mortgage defaults.  This name just looks like a big red flag.
So, Mr. Plaintiff, how exactly does the Distressed Mortgage Fund make money? 


Like all REMIC-based trusts, it is a special purpose entity registered with the SEC. It probably bought distressed mortgages at a huge discount and intended to foreclose on as many as possible as fast as possible to make money.

When BofA/Countrywide started messing with the time-line for foreclosures, their profit model no longer worked the way it was supposed to.

Moose


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This is an interesting topic.  The lawsuit could boomerang against the Hedge Fund.  If the action eventually goes against the hedge fund they will be stuck with billions of dollars of loans that someone else will be modifying for them.  My response is tough luck.  Your a 'hedge' fund and you lost your bet. 

On the other hand if the action goes in their favor, billions of dollars of loans may have to exit the securitizations and who pays for them?  It won't be Countrywide or anyone else.  My guess is if loans are forced back on the originator then they will simply file bankruptcy to wipe out the liability.  There is no doubt in my mind that when Paulson saw the scope of mortgages held by the securitzations and the threats about lawsuits like this one I am sure someone tapped his forehead and told him how deep a hole he had dug with his pronouncements about buying mortgages.

Look at the New Century securitzations.  They sold billions of dollars worth of loans which are in a no mans land of trusts.  The PSA in almost all of the NC trusts state that non-performing loans have to be bought back by the originator.  Of course, NC went BK and walked away from any liability of having to buy back mortgages.  HomeQ doesn't have the money to buy all of the non-performing NC loans and trustee Deutsche Bank certainly isn't going to spend a dime to buy mortgages out of trusts.  Neither will the depositors or any of the other organizations in the original securitization flow.

These leaves mortgages hanging in the trusts. 

The investors and hedge funds got greedy and lose either way.

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Behind Greenwich’s Dispute With Countrywide - The Deal Professor, NYTs
http://dealbook.blogs.nytimes.com/2008/12/09/behind-greenwichs-dispute-with-countrywide/
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