In Their Fight with Banks over Mortgage Losses, Investors Side with Borrowers

The fight between big banks and investors who lost a fortune on mortgage-backed securities is shifting from private litigation to the public arena, The Washington Post reported yesterday. While the investors have been angry at the banks for several years for the losses, their legal efforts have not gotten far, mostly because of the difficulty of organizing enough peers for class-action lawsuits and of prying information from the lenders, but the recent uproar over the banks' foreclosure practices has given the investors a way to pressure lenders outside the courts. As Congress begins discussing potential mortgage servicing legislation, and as the group of 50 state attorneys general investigating problems with foreclosures continues to hammer out details of a settlement with the banks, the investors find themselves fortuitously aligned with borrowers who are facing foreclosure and who have the sympathy of lawmakers. The Association of Mortgage Investors, a Washington, D.C.-based group that represents hedge funds, state pension funds, charitable endowments and other investors, is calling for improvements to servicing and transparency that the banks have resisted in the past. The team leading the 50-state investigation has been meeting with the country's major servicers in recent weeks and with stakeholders such as the investors. Investors represent what may be the biggest risk to banks that initiated questionable foreclosures. While homeowners may succeed at getting individual foreclosures delayed or even overturned because of paperwork mistakes and other errors, the money at stake in such cases is minuscule compared with the billions in bad mortgages that banks could be forced to buy back if investor lawsuits are successful. The pressure from mortgage investors comes just weeks before the release of two key federal reports about the mortgage industry—a multi-agency report on the foreclosure problems and another by the Treasury Department on Fannie Mae and Freddie Mac.

http://www.washingtonpost.com/wp-dyn/content/article/2011/01/12/AR2011011205564.html