AMI Takes Position against Mortgage Servicing Settlement

In a strongly worded statement on behalf of the AmericanrnAssociation of Mortgage Investors (AMI), Jonathan Lieberman, Managing Directorrnof Angelo, Gordon & Company, criticized the recent settlement agreementrnover alleged mortgage servicing and foreclosure processing abuses.  Lieberman, told the Association’s bondholdersrnin a conference call that the settlement, reached last week between five majorrnbanks and their servicing subsidiaries, the Departments of Justice and HealthrnEducation and Welfare, and 49 of the 50 states’ attorneys general that, “Currentrnpress reports tell a story of regulators imposing penalties not only on the badrnactors but also on Americans’ investors, pension funds, and retirees,” and thatrn”the rush to finalize a flawed and opaque settlement smells funny.</p

Members of AMI, he said, have neither direct control ofrnservicing nor direct contact with mortgage borrowers; rather have sufferedrnmaterial losses due to the bad acts of mortgage servicers.  He compared the current climate to the timernperiod of 2007 and 2008 “during which our government and regulators picked winnersrnand losers among domestic banks, broker dealers, foreign banks, insurance companies,rnand auto manufacturers; mortgage investors are confronted by like-mindedrngovernmental behavior.” </p

Lieberman said that winners from the settlement, which willrncost the banks between $25 and $40 billion dollars, are “potentiallyrnirresponsible borrowers, self-servicing, poorly managed and unprincipled banksrnand servicers, rating agencies with no alignment of interest with investors,rnsituational regulators and select members of the political class.”  The losers are “Responsible Americans -rnespecially prudent conservative investors, borrowers and savers. Investors’rnreturns will probably suffer, private capital will continue to shy away fromrnmortgage lending and long term the cost of capital will escalate forrnresponsible borrowers.  All Americans arernultimately the BIG (emphasis is Lieberman’s) losers.”</p

Lieberman said he sees no penalty, just continued erosion ofrnresponsibility, community standards of care, moral values and fiduciaryrnstandards.  “At its root, credit is arnprivilege, not a right and not democratically allocated.  You earn credit which allows you to borrowrntomorrow’s money to pay for something you get today.”</p

With the background of the $350 billion in cumulative lossesrnexperienced by investors since 2007, the 1 million loan modifications that havernhelped homeowners remain in their homes, and the 2.5 million mortgages that arerndelinquent today there are a number of issues that investment managers in thernmortgage sector need to ask.</p<ul class="unIndentedList"<liCan firms effectively assess, protect, andrncontrol investor capital?</li<liDo American standards of fair play and rule ofrnlaw apply to mortgages investments?</li<liWhy are Fannie Mae and Freddie Mac excluded fromrnthe settlement? Were the banks followingrnthe GSE guidelines, using their law and document preparation firms and didn'trnthe GSEs have the unilateral right to terminate and move servicing?</li<liWhy were investors not included in the servicingrnnegations nor protected during the settlement?</li<liHave government officials decided that investorsrnwill be the losers in the fight among borrower, banks, and investors.</li</ul

Lieberman concluded his statements by saying Associationrnmembers stand ready to provide information and support to government officialsrnand regulators and borrowers who have been abused by servicers and “stand readyrnto support the write down of underwater second lien mortgages.”

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