Mortgage News: Investors Have Rights Too
What rights do mortgage investors have when loan servicers want to change loan terms? That is the essential issue in this case which pits Greenwich Financial Services Distressed Mortgage Fund 3, LLC against Countrywide Financial Corporation, now a part of Bank of America.
Does the safe harbor provision created by Congress last March for mortgage servicers allow servicers to change the terms of loans owned by investors without the approval and authority of investors — even when it means that investor returns will fall and that asset values will decline? According to United States District Judge Richard J. Holwell, the answer is no — meaning the investors now have the right to take Countrywide to court.
A major issue here concerns potent conflicts of interest. For instance, if a mortgage servicer is a big bank can it modify loans owned by investors — but not loans that it owns?
Greenwich is headed by William Frey, perhaps the country’s best advocate of mortgage investor rights. In conversations with me, Frey has pointed out that protecting investor rights is important as a matter of law even if such rights may not be politically popular.
Moreover, Frey notes that mortgage “investors” are often insurance companies and pension funds which actually benefit average citizens such as retirees, state workers and other groups. Cutting mortgage rates or reducing the value of mortgage securities can impact individuals across the country who depend on such money for their retirement and lifestyle.
Incidentally, Greenwich is a securities broker-dealer and not a hedge fund.
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