NY Fed Reserve Joins Others In Bid To Make Big Banks Eat Crappy Mortgage Loans; Stonewalling Servicers, Trustees Refuse To Turn Over Requested Info

Reuters reports:

• The Federal Reserve Bank of New York [...] said it may try to force banks to repurchase bad home loans backing securities it holds, joining the ranks of other big investors who have been gaining momentum with identical demands. The effort from the New York Fed to boost the value of its Maiden Lane portfolio is similar to what U.S. mortgage finance giants Fannie Mae and Freddie Mac have been doing as they try to hold accountable sources of irresponsible lending that caused steep losses.

• The investors are seeking to enforce representations and warranties that ensure the quality of loans put in bonds, such as residential mortgage-backed securities and collateralized debt obligations sold by Wall Street during the housing boom. [...] The three Maiden Lane funds combined held an average $67.4 billion in assets in the week ending July 28, Fed data shows.

• The Fed's acknowledgment comes after Reuters last month reported that investors representing $500 billion in bonds—or a third of the private mortgage bond market—said they have taken the biggest steps yet in their effort to force banks to repurchase loans sold in error.(1)

• These investors have topped the key 25 percent threshold for voting rights on 2,300 "private-label" mortgage bonds, which will give them the ability to force trustees to act on repurchase requests. Investors heretofore have been frustrated by trustees and servicers, who have said they are limited in the information they can share.(2)

For the story, see NY Fed joins other investors on loan repurchase bid.

(1) See Mortgage bond holders get legal edge; buybacks seen (U.S. mortgage bond investors have quietly banded together to gain the long-sought power needed to challenge loan servicers over losses the investors claim resulted from violations in securities contracts).

(2) Apparently, financially strapped homeowners seeking sustainable loan modifications aren't the only ones getting the jerk-around from the mortgage servicers and trustees.