Details of Greenwich v. Countrywide Emerge

An article published on Monday in Business Week (available here) sheds some additional light on the lawsuit filed by Hedge Fund Greenwich Financial Services against Countrywide challenging its agreement to conduct large-scale loan modifications (previously discussed here, here, and here).

Though his name is not mentioned in the complaint, the moving force behind the lawsuit is Greenwich Financial CEO, William Frey, a self-styled “advocate for investors’ contractual rights” (see a short bio on Frey here). The complaint seeks class action status on behalf of “all persons or entities that own or hold certificates in one or more of” over 100 Countrywide securitizations.
As the Business Week article points out, Frey has been vocal in his opposition to loan modifications since March of this year and maintains that he’s on a crusade to protect the rights of all investors who purchased Triple A-rated bonds, not just those who bought bonds backed by Countrywide mortgages. Frey argues that such modifications violate contract law and thus discourage future investment in the U.S. financial system. Frey has received pressure from Washington legislators, including in the form of a letter signed by, among others, Barney Frank (D-Mass.), Maxine Waters (D.-Calif.) and Luis v. Gutierrez (D.-Ill.), to back off of his position and allow the bailout bill to go through. You can view Frey’s letter in response here.
An interesting side note raised by the article is that Ocwen Loan Servicing, the largest subprime mortgage servicing company, could become the target of additional lawsuits challenging loan modifications if workouts are found to violate securitization contracts. Though the general counsel for Ocwen is quoted as saying that servicers are bound to pursue modifications that benefit all parties, this becomes difficult when, as is often the case, the various parties’ interests conflict.
As loan modification looks to be central to any plan to stabilize the mortgage market, the outcome of these legal battles will be pivotal to the question of who bears the cost of the subprime and broader financial crises. Look for these lawsuits to heat up and multiply over the coming months.
This entry was posted in BofA, contract rights, costs of the crisis, Countrywide, Greenwich Financial Services, lawsuits, litigation, loan modifications, Ocwen, securitization, stability, subprime, William Frey, workouts. Bookmark the permalink.