SEC Investigation- Mortgage Repurchases

Posted by kevin on September 29, 2011 under Foreclosure Blog | Comments are off for this article

This is a part of the game that the consumer does not see.  The SEC is investigating Credit Suisse and RBS for misleading investors as to the number of bad loans that had to be repurchased (or should have been repurchased) by the originators for failure to live up to the warranties and representations made in the Pooling & Servicing Agreements (PSA) or other like documents.

PSA’s have provisions whereby the trustee is required to review the loans to see that they are according to Hoyle, or they can bounce a loan.   This could be for a faulty signature, but it could also be because of a questionable appraisal or failure to document the income of the borrower.  The more bad loans in a trust, the greater the chance that defaults will occur.  But on the other end, it usually means that the originators were pushing predatory loans on homeowners who could not afford them, and the trusts were knowingly taking in these loans.

The SEC got wind of possible problems at CS and RBS because an insurer, MBIA, alleged that certain trustees bounced loans back to originators, got money, and then went to the insurer to be paid on a credit default swap.  This is called double dipping.

The SEC did little or nothing in the time leading up to the mortgage crisis and have been called on it.  It is a little late in the game for them to be jumping in, but better late than never.

I routinely ask for statistics on returned loans in discovery and get no answer.  To date, the courts have not pushed this issue maybe because they are bogged down on procedural issues.  But this could be the next battleground in foreclosure defense.