October 18, 2010
In a letter dated September 2, 2010 from Teresa M. Casey, Executive Director of the Association of Financial Guaranty Insurers (hereafter AFGI) to Brian T. Moynihan, Chief Executive Officer and President of Bank of America Corporation (hereafter BOA), Ms. Casey notifies Mr. Moynihan of the obligations of BOA (including Countrywide Home Loans) which are owed to the financial guaranty insurance industry “arising from representations and warranties provided by BOA on securitizations, insured by our industry members, of home equity lines of credit (“HELOCs”), and first and second lien residential mortgage loans.” The letter states that while BOA has publicly announced its intention to challenge its representation and warranty obligations on a “loan by loan” basis, the AFGI “submits that this defensive posture will soon prove ineffective in shielding BOA from the financial, accounting, legal and other implications of its massive obligations to our industry members.”
How massive? The letter states that each of the industry members which has insured BOA securitizations has concluded, based on reports of third-party experts, that “well more than half” of the non-performing loans originated in 2005, 2006, and 2007 “qualify for repurchase by BOA”, and that the current estimate for repurchase liability is in the range of $10 to $20 billion for industry members alone. The letter states that “all of the HELOC securitizations and tens of billions of dollars of other residential mortgage (including first lien) securitizations sponsored by BOA were insured by our industry members”. The letter goes on to advise that the industry members “are committed to pursuing their rights against BOA for representation and warranty repurchases in connection with our insured securitizations.”
What does this mean for residential foreclosures initiated by BOA? it means that there is and will continue to be unresolved issues as to at least the following:
(a) whether a loan was misrepresented in any respect to the insurers, including the ability of the borrower to continue payments throughout the life of the loan. If so, this could provide evidence that the loan was predatory and result in a counterclaim or defense to a foreclosure by the borrower.
(b) the extent of available insurance on the loan (arising out of the apparent coverage and repurchase issues implicated by the letter), which itself gives rise to issues as to available setoffs against amounts claimed due and owing.
(c) the extent of payments made on defaulted loans in securitizations by whatever insurance may have been available prior to coverage being contested.
(d) if BOA persists in its “loan by loan” defensive challenge to coverage, a possible stay of any BOA-related foreclosure until it is determined whether securitization insurance on the particular loan the subject of the foreclosure is being challenged by BOA and pending the final disposition of any such challenge.
We have been hammering on these issues as to available insurances and setoffs in securitized loans for years. We have repeatedly sought this information in discovery only to receive objections. We have also had several opposing attorneys claim that no such insurance on securitized mortgage loans even existed. This letter proves that such insurance exists and has existed as to loans originated as far back as 2005, so opposing counsel either (a) lied, or (b) was not informed as to their own client’s operations.
Fortunately, we have had many courts in our cases deem this discovery relevant, and we have had many foreclosures dismissed for the foreclosing party’s failure to provide this very discovery with any refiling conditioned on the subject court-ordered discovery being provided in total. What we see happening in light of this letter are the assertion of additional defenses, additional discovery, and possibly additional claims being made by borrowers in securitization cases. Further, if the insurance industry is making such a claim against BOA, it is probably not long before similar claims will be made against Wells Fargo, US Bank, Deutsche Bank, and the others pursuing foreclosures.
Jeff Barnes, Esq., www.ForeclosureDefenseNationwide.com