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In a response that can only be described as indignant, Bank of America fired back on November 4 at the group of investors that demanded that Countrywide/BofA repurchase loans in connection with $47 billion worth of private-label mortgage backed securities. In the strongly-worded letter, a full copy of which is embedded below, BofA attorneys Theodore Mirvis of Wachtell, Lipton, Rosen & Katz; Brian Pastuszenski of Goodwin Procter and Marc Dworsky of Munger, Tolles & Olson railed against the allegations contained in the October 18 letter authored by attorney Kathy Patrick of Gibbs & Bruns, stating that Patrick’s letter contained “misleading statements,” alleged claims that were “utterly baseless,” and appeared to have been “written for an improper purpose, or in furtherance of a [sic] ulterior agenda.”
Much has made of Patrick’s October 18 letter, which was signed by such major institutional investors as BlackRock, PIMCO, MetLife, the New York Fed and Freddie Mac, making it the the most high-profile investor repurchase demand to date as to non-conforming mortgages. In fact, BAC’s stock slid nearly 5% when news of the letter first emerged.
Yet, as I noted when I first posted about this letter and when I posted a copy of the letter a few days later, this first high-profile investor putback effort featured some serious deficiencies that might prevent it from succeeding – namely, that it failed to identify specific breaches of reps and warranties with respect to specific loan files or provide any evidence supporting those specific breaches. Indeed, this turns out to be the very first point BofA’s attorneys make in responding to the letter. In pointing out some of the “glaringly evident” deficiencies in the letter, BofA’s attorneys state:
Your letter fails to set forth a single fact in support of any of your allegations, but rather relies solely on conclusory and often misleading statements. (emphasis in original)
The BofA letter goes on to demand that the investors provide “sufficient factual basis for their allegations” and “identify the specific provisions of the specific PSA that is alleged to have been breached.” Pursuant to the procedural roadmap from Judge Kapnick’s opinion dismissing the plaintiffs’ case in Greenwich Financial v. Countrywide, I would agree that Kathy Patrick’s investors will have to make this showing to survive a motion to dismiss for lack of standing if they eventually file suit against BofA/Countrywide.
However, the BofA letter also makes a number of points that are far less grounded in fact and appear designed to place political pressure on investors hoping to recover a portion of their MBS losses. For example, BofA characterizes Patrick’s letter as demanding that Countrywide hasten foreclosures and reduce loan modifications. The letter even accuses Freddie Mac’s involvement with Patrick’s group as “patently inconsistent” with the GSEs and federal government’s stated goal of helping troubled borrowers stay in their homes. While this has historically been a hot button political subject, BofA’s statements are not an accurate representation of what the investors are seeking.
In fact, the Patrick letter specifically states that investors “do not seek to halt bona fide modifications of troubled loans for borrowers who need them.” Instead, investors take issue with the Countrywide settlement with state Attorneys General in which, in exchange for the AGs dropping claims of predatory lending against Countrywide, Countrywide agreed to modify 400,000 loans, the large majority of which it no longer held on its books. Patrick’s group seeks simply to hold Countrywide to its contractual agreement to repurchase loans that it modifies as a cure for predatory lending.
Similarly, Patrick’s letter does not demand that Countrywide force borrowers out of their homes. To the contrary, the investors are simply demanding compliance with the Countrywide pooling and servicing agreement provision (Section 3.11(a)) that states that the Master Servicer must,
use reasonable efforts to foreclose upon or otherwise comparably convert the ownership of properties securing such of the Mortgage Loans as come into and continue in default and as to which no satisfactory arrangements can be made for collection of delinquent payments. (emphasis mine)
In other words, Patrick’s letter simply asks that Countrywide modify where it is reasonable to do so (and where it is not a remedy for Countrywide’s own predatory lending) and foreclose promptly where it is apparent that no satisfactory modification is to be had. Patrick’s letter is thus better characterized as a demand that Countrywide perform its fundamental role as servicer, rather than as a heartless demand that Countrywide start kicking people out of their homes.
Finally, BofA’s letter sets forth a plethora of additional information from investors that it demands be provided prior to Countrywide taking any action. Included in this is a demand that Patrick provide, for each bondholder who signed onto the letter, the names of the individuals who authorized that signature, whether the bondholder’s board of directors authorized that letter, and whether any of the bondholder’s controlling shareholders authorized the letter. I’m not sure from where BofA derives the authority to demand this information, but it clearly suggests that BofA is not convinced that the internal management within each of the signing entities was unanimous in support of the Patrick letter. BofA may also be trying to dissuade others from authorizing similar letters in the future for fear of their names being publicly revealed, something that institutional investors and their managers have thus far been reluctant to do.
Ultimately, though the BofA letter contains a lot of bark, the only bite that I can discern is the demand for more specific information. Everything else is, well, politics as usual.