One of the most interesting stories we’ve been following in the world of mortgage crisis litigation has been the lawsuit filed by Greenwich Financial Services CEO William Frey against Countrywide Financial Corp., Countrywide Home Loans, Inc. and Countrywide Home Loans Servicing LP (all now part of BofA). As discussed in several prior postings, Frey has sued Countrywide on behalf of investors in subprime mortgage-backed securities for violating its securitization agreements when it agreed to large-scale loan modifications as part of its $8 billion settlement with Attorney Generals from dozens of states.
Mr. Frey says he may negotiate with mortgage servicers on behalf of bond investors or file lawsuits against other mortgage-servicing companies. “This is an opening salvo,” he says.
Mr. Frey didn’t initially hold any of the Countrywide bonds that are the subject of the settlement. But in the past month he set up a distressed-bond fund that, he says, contains “substantial holdings” in Countrywide bonds. These bonds were transferred into the fund by one investor who wanted to challenge the company’s actions while staying out of the spotlight. “This is a vehicle designed to put me in charge of resolving these pools,” Mr. Frey says. Mr. Frey and his attorney, David Grais, decline to name the investor or provide information about the size of the fund or whether Mr. Frey himself had invested any money in it.
So, let me get this straight: Frey is actually the spokesperson for a wealthy investor, who in turn has transferred bonds that were the subject of the Countrywide settlement to Frey so that he could have standing to represent a larger class of aggrieved bondholders. Hmmm… not only is it clear that Frey is no Lorax, but this mysterious investor behind the Greenwich lawsuit may not be driven by a higher moral calling, either. After all, if Greenwich is able to prevail and force Countrywide to repurchase the subject loans at face value, this clandestine investor would receive a financial benefit compared to the current depressed value of the bonds (or perhaps this investor actively purchased these bonds hoping that he’d realize a profit as a result of a successful outcome to the Greenwich litigation). Thus, it appears the mantra repeated by the Once-lers to justify exploiting the environment and by mortgage originators and banks to justify massive expansion of their lending programs, may be the same mantra underlying Greenwich’s challenge to the Countrywide settlement: “business is business, and business must grow.”