“Although it has been specifically notified by MBIA, Ambac, FGIC, Assured Guaranty, and other mortgage and mono-line insurers of specific loans that violated the required representations and warranties, the Master Servicer has not notified any other parties of these breaches of representations and warranties;


October 18, 2010
Facsimile No. 805 520 5623
Countrywide Home Loans Servicing LP
Attn. Mark Wong
400 Countrywide Way
Simi Valley, CA 93065

Facsimile No. 805 520 5623
Countrywide Home Loans Servicing LP
Attn. Mark Wong
7105 Corporate Drive
Plano, TX 75024

Facsimile No. 212 815 3986
The Bank of New York
101 Barclay Street
4 West
Attn: Mortgage Backed Securities Group
for Trusts Listed on Ex. A
New York, NY 10286

Facsimile No. 212 815 3986
The Bank of New York
101 Barclay Street
Attn: Corporate Trust MBS Administration for Trusts Listed on Ex. A
New York, NY 10286

Mr. Leo Crowley
Ms. Jeanne Naughton Carr
Pillsbury LLP
1540 Broadway
New York, NY 10036-4039

Re: HOLDERS’ NOTICE TO TRUSTEE AND MASTER SERVICER OF FAILURE OF MASTER SERVICER TO PERFORM GIVEN PURSUANT TO §7.01(ii) OF POOLING AND SERVICING AGREEMENTS PERTAINING TO THE RESIDENTIAL MORTGAGE BACKED SECURITIES LISTED ON THE ATTACHED EXHIBIT “A”

Dear Sir or Madam:

Unless otherwise indicated, all capitalized terms used in this letter have the meaning ascribed to them in those certain Pooling and Servicing Agreements (PSAs) governing

Residential Mortgage-Backed Securities (RMBS) evidenced by the Countrywide Mortgage Pass- Through Certificates (Certificates) listed on the attached Exhibit “A.”

The undersigned are the Holders of not less than 25% of the Voting Rights in Certificates issued by the Trusts listed on the enclosed Exhibit A.

Pursuant to Section 7.01(ii) of the applicable PSAs, the Trustee and the Master Servicer are hereby notified of the Master Servicer’s failure to observe and perform, in material respects, the covenants and agreements imposed on it by the PSAs. Specifically, the Master Servicer has failed and refused to do the following, which have materially affected the rights of Certificateholders:

1. Section 2.03(c) of the PSAs states that “Upon discovery by any of the parties hereto of a breach of a representation or warranty with respect to a Mortgage Loan made

pursuant to Section 2.03(a) … that materially and adversely affects the interests of the Certificateholders in that Mortgage Loan, the party discovering such breach shall give prompt notice thereof to the other parties.” The Master Servicer has failed to give notice to the other parties in the following respects:

a. Although it regularly modifies loans, and in the process of doing so has discovered that specific loans violated the required representations and warranties at the time the Seller sold them to the Trusts, the Master Servicer has not notified the other parties of this breach;

b. Although it has been specifically notified by MBIA, Ambac, FGIC, Assured Guaranty, and other mortgage and mono-line insurers of specific loans that violated the required representations and warranties, the Master Servicer has not notified any other parties of these breaches of representations and warranties;

c. Although aware of loans that specifically violate the required Seller representations and warranties, the Master Servicer has failed to enforce the Sellers’ repurchase obligations, as is required by Section 2.03; and,

d. Although there are tens of thousands of loans in the RMBS pools that secure the Certificates, the Trustee has advised the Holders that the Master Servicer has never notified it of the discovery of even one mortgage that violated applicable representations and warranties at the time it was purchased by the Trusts.

2. In violation of its prudent servicing obligations under Section 3.01 of the applicable PSAs, the Master Servicer has:

a. Failed to maintain accurate and adequate loan and collateral files in a manner consistent with prudent mortgage servicing standards;

b. Failed to demand that sellers cure deficiencies in mortgage records when deficient loan files and lien records are discovered;

c. Exacerbated losses experienced by the Trusts;

d. Incurred wholly avoidable and unnecessary servicing fees and servicing advances to maintain mortgaged property, all as a direct result of the Master Servicer’s deficient record-keeping; and,

e. Prejudiced the interests of the Trusts and the Certificateholders in the mortgages by fostering uncertainty as to the timely recovery of collateral.

3. Section 3.11 (a) states that the Master Servicer “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.” Despite these covenants, the Master Servicer has continued to keep defaulted mortgages on its books, rather than foreclose or liquidate them, in order to wrongfully maximize its Servicing Fee, at the expense of the Certificateholders’ best interests, including rights to recover from pool or financial guaranty insurance policies. In addition, the applicable provisions of the PSAs contemplate that foreclosures and liquidations of defaulted mortgages will proceed forthwith and in accordance with applicable law, provided the documentation is in order, as a matter of fairness to all parties. The Servicers’ failure to proceed appropriately and their failure to maintain records in an accurate, appropriate, and adequate manner has impeded this process and caused wholly avoidable delays that have injured investors, borrowers, neighborhoods, and communities. To make matters worse, these delays have also enriched the Servicers, as they have continued to charge unearned and unwarranted servicing fees on mortgages which would have been liquidated but for the Servicers’ breach of their duties;

4. Section 3.11 of the PSAs provides that “Countrywide may agree to a modification of any Mortgage Loan” in certain specified circumstances. The Holders do not seek to halt bona fide modifications of troubled loans for borrowers who need them. When, however, modifications are required to remedy predatory lending violations, Section 2.03(c) of the PSAs requires that the offending seller of the mortgage bear the costs to “cure such breach in all material respects….” Nowhere do the PSAs permit the costs of curing predatory loans to be imposed on the Trusts or the Certificateholders. Despite these provisions, the Master Servicer has breached the PSAs by agreeing to modify loans held in the Trusts for the purpose of settling predatory lending claims made by various Attorneys’ General against its parent company while breaching its obligation to demand that the offending mortgage seller (its parent company) bear the costs of curing the violation, as well as the expenses reasonably incurred in enforcement of the mortgage seller’s obligation to cure predatory mortgages. Id. At §2.03(c). The Master Servicer has also unjustly enriched its parent company by using Trust collateral to settle claims that are not, and could never be, made against the Trusts, in a manner that has “materially and adversely affected the interest of the Certificateholders…” Id. The Master Servicer has therefore:

a. Failed to perform its obligation to demand that Countrywide comply with the requirement that it cure or repurchase predatory and ineligible loans it has agreed to modify in the Attorney General settlement;

b. Failed to track or notify the Trustee concerning which specific loans the Master Servicer has modified pursuant to these provisions, even though the PSAs require that “the Modified Mortgage Loan shall be automatically be deemed transferred and assigned to Countrywide…”; and,

c. Failed to perform its obligation to “deliver to the Trustee a certification of a Servicing Officer to the effect that all requirements of this paragraph have

been satisfied with respect to the Modified Mortgage Loan.”

5. Section 3.14 of the PSAs provides that the Master Servicer shall be entitled to recover Servicing Advances that are “customary, reasonable and necessary ‘out of pocket’ costs and expenses incurred in the performance by the Master Servicer of its Servicing Obligations including but not limited to the cost of (i) the preservation, restoration, and protection of a Mortgaged Property…” Despite the requirement that Servicing Advances were to be incurred only for reasonable and necessary out of pocket costs, the Master Servicer instead utilized affiliated vendors–who marked up their services to a level 100% or more above the market price–to provide services related to the preservation, restoration, and protection of” Mortgaged Property, in a fraudulent, unauthorized, and deceptive effort to supplement its Servicing income. See ¶ 3(a) and (b), above.

6. Section 3.01 of the PSAs requires that the Master Servicer “shall service and administer the Mortgage Loans in accordance with the terms of this Agreement and customary and usual standards of practice of prudent mortgage servicers.” Despite this requirement, the Master Servicer has repeatedly and deliberately failed to perform this covenant by:

a. Creating Countrywide-affiliated vendors to provide maintenance, inspection, and other services with regard to defaulted mortgages that should have been

undertaken only if they were in the Certificateholders’ best interest. The Federal Trade Commission, however, found that Countrywide repeatedly and deliberately overcharged for these services by as much as 100% or more in order to increase its profits from default-related service fees; and,1

b. As a result of these wrongful practices, Countrywide has increased the losses to the Trusts. Each of these failures to perform the Master Servicer’s covenants and agreements violated the prudent servicing obligations imposed on the Master Servicer by PSA §3.01. Each of these failures to perform the Master Servicer’s covenants and agreements also materially affected the rights of the Certificateholders.

Each of these failures to perform is continuing. If they continue for an additional sixty days from the date of this letter, each of them—independently—will constitute an Event of Default.

The undersigned Holders therefore demand that the Master Servicer immediately cure these endemic and grievous defaults in its obligations under the PSAs.  By this letter, the Holders further notify the Trustee of the Master Servicer’s failure to perform its covenants and agreements.

The undersigned Holders also reserve all other rights and remedies they may have, individually and under the PSAs, as a result of the matters described in this letter.  We invite you to communicate with our counsel, Ms. Kathy Patrick of Gibbs & Bruns LLP, should you wish to discuss this matter further.

1 The specific details of the Master Servicers’ wrongful conduct are available in a press release issued by the Federal

Trade Commission, which is accessible at the following website:

http://www.ftc.gov/opa/2010/06/countrywide.shtm.

[INTENTIONALLY LEFT BLANK]

Very truly yours,

Blackrock Financial Management Inc., and its advisory affiliates
John Vibert, Managing Director

Freddie Mac Corporation
Ray Romano, EVP Chief Credit Officer

Kore Advisors, LP
Gary J. Kosinski, Principal

Maiden Lane, LLC; Maiden Lane II, LLC; and Maiden Lane III, LLC
Federal Reserve Bank of New York, Managing Member
Zachary Taylor, Assistant Vice President

Metropolitan Life Insurance Company
Charles S. Scully, Managing Director

Neuberger Berman Europe, Ltd. as investment manager to a managed account client
Ope Agbaje, Executive Director

PIMCO Investment Management Company LLC
Daniel J. Ivaseyn, Managing Director

Western Asset Management Company, for its clients and managed accounts
C.A. Ruyi de Perez, General Counsel

Deal Name Deal Name Deal Name
CWALT 2004-32CB CWHL 2004-22 CWL 2006-15
CWALT 2004-6CB CWHL 2004-25 CWL 2006-16
CWALT 2004-J1 CWHL 2004-29 CWL 2006-19
CWALT 2005-14 CWHL 2004-HYB9 CWL 2006-2
CWALT 2005-21CB CWHL 2005-11 CWL 2006-20
CWALT 2005-24 CWHL 2005-14 CWL 2006-22
CWALT 2005-32T1 CWHL 2005-18 CWL 2006-24
CWALT 2005-35CB CWHL 2005-19 CWL 2006-25
CWALT 2005-36 CWHL 2005-2 CWL 2006-26
CWALT 2005-44 CWHL 2005-3 CWL 2006-3
CWALT 2005-45 CWHL 2005-30 CWL 2006-5
CWALT 2005-56 CWHL 2005-9 CWL 2006-7
CWALT 2005-57 CB CWHL 2005-HYB3 CWL 2006-9
CWALT 2005-64 CB CWHL 2005-HYB9 CWL 2006-BC2
CWALT 2005-72 CWHL 2005-R3 CWL 2006-BC3
CWALT 2005-73CB CWHL 2006-9 CWL 2006-BC4
CWALT 2005-74T1 CWHL 2006-HYB2 CWL 2006-BC5
CWALT 2005-81 CWHL 2006-HYB5 CWL 2006-SD1
CWALT 2005-AR1 CWHL 2006-J2 CWL 2006-SD3
CWALT 2005-J5 CWHL 2006-OA5 CWL 2006-SD4
CWALT 2005-J9 CWHL 2006-R2 CWL 2006-SPS2
CWALT 2006-14CB CWHL 2007-12 CWL 2007-2
CWALT 2006-20CB CWHL 2007-16 CWL 2007-5
CWALT 2006-37R CWHL 2008-3R CWL 2007-6
CWALT 2006-41CB CWL 2005-10 CWL 2007-7
CWALT 2006-HY12 CWL 2005-11 CWL 2007-9
CWALT 2006-OA11 CWL 2005-13 CWL 2007-BC1
CWALT 2006-OA16 CWL 2005-16 CWL 2007-BC2
CWALT 2006-OA17 CWL 2005-2 CWL 2007-BC3
CWALT 2006-OA6 CWL 2005-4 CWL 2007-QH1
CWALT 2006-OA9 CWL 2005-5 CWL 2007-S3
CWALT 2006-OC10 CWL 2005-6
CWALT 2006-OC2 CWL 2005-7
CWALT 2006-OC4 CWL 2005-8
CWALT 2006-OC5 CWL 2005-9
CWALT 2006-OC6 CWL 2005-AB2
CWALT 2006-OC7 CWL 2005-AB3
CWALT 2007-17CB CWL 2005-AB4
CWALT 2007-23CB CWL 2005-BC5
CWALT 2007-24 CWL 2005-IM1
CWALT 2007-OA7 CWL 2006-10
CWALT 2008-2R CWL 2006-12

~~~

PDF after the jump

39686107 Bondholders Letter to BofA Over Country Wide Loans Inc NY Fed

Category: Legal

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

35 Responses to “Full Text of Letter to BofA from NY Fed (Maiden Lane), Freddie Mac, Pimco, Western Asset Mgmt, Neuberger Berman, Kore Advisors”

  1. formerlawyer says:

    Kathy D. Patrick – the heavy gun. This should be interesting.

  2. bergsten says:

    “If they continue for an additional sixty days from the date of this letter, each of them—independently—will constitute an Event of Default.”

    Isn’t this an “out”?

  3. formerlawyer says:

    Bersten:

    What do you mean an “out”? As I read it this a demand/notification letter with a 60 day fuse. She also reserves all other rights.

  4. JimmyDean says:

    BR – great stuff. Couplea questions for ya:
    Given this, what’s your asset allocation model as of tonight?
    Do you think there will be a second bailout? if so, when?

    ~~~

    BR: See this

  5. Thanks, Barry. Your work on this is really appreciated.

  6. alaskanriley says:

    I’m so glad we fined Angelo all those millions. I would hate to think he made out. I second Mr. Watts. Without your astute observations and sacrifices, I would be waiting for Zero Hedge’s asteroid and generally feeding the bugs in New York I hear so much about.

  7. Chief Tomahawk says:

    What a contrast in styles … if one doesn’t appreciate the above formal method of sh*tstorm, tune in to watch the French act it out on the street!

  8. Dennis the menace says:

    You should stick this up the asses of those smarmy CNN anchors you argued with — what a clueless pair of ignorant MSM morons.

  9. The Window Washer says:

    Recesssion Porn Money Shot!!!!
    These people are NOT fucking around.

    At least now we can hope.
    Hammering on this before the election is the only way to avoid a back room deal to bail them out again. Get everyone on the record saying they won’t do another B.S. bill voice vote.

    Keep at it Barry.

  10. The Window Washer says:

    Ok, everybody after a re-read is it points 4.c and 5 that get you a RICO?
    Seems like it starts with a contract fight and ends with Kathy spinning a pair of hand-cuffs on her finger.

  11. triozyg says:

    yeah, civil RICO!! take them for all they’ve got!

  12. Can anyone STILL think this is about keeping deadbeat borrowers in their mortgage defaulted homes?

  13. m111ark says:

    It’s called “farming.” First you increase credit to the moon, (that’s why the Bush Regime prevented states from enforcing their own predatory lending laws – got to get all the suckers), then you crash the market by contracting credit, then you (the Giant Motherf**king Banks) take the collateral. That’s how the GMB (and the real owners of YOU AND I, THE NEW FEUDAL SERFS) get rich and powerful. It’s really power they’re after now, they’ve got all the money – and they’re going to get it. OH Ya’, they’re getting after em’ now – pure dialectic bullshit, a simple diversion for YAITNFS. How do you think the elites got to be owners of farm land in the midwest? Same game the GMB have been playing for decades.

  14. Yves Smith says:

    This is what they are doing to initiate a suit. (This is not a suit).

    The other issue procedurally, is Countywide is playing two roles (and there are almost certainly two Countrywide entities involved).

    The “cure” is for Countrywide as Servicer to put back the loans to Countrywide as Originator.

    Countrywide as Servicer is gonna drag its feet and say no.

    The plaintiffs will sue Countrywide as servicer and say no they were wrong, there were breaches. But that means they need to PROVE there are breaches. So they need access to the underlying loan files. Not clear they can do that ex discovery with Countrywide as originator (you need to see the terms of the pooling and servicing agreement). If it isn’t clearly in the PSA, they may be stuck not being able to prove any breach.

    The woman who is leading this litigation feel on her face in her first go at this, trying to go after the trustees. Her track record does not inspire confidence as to her mastery of this area.

    And even if they do, you have to argue these cases on a loan by loan basis, which is hugely expensive. So no one every goes very far, this type of case gets settled, typically for 10-15% of the amount at issue. And that ISN”T the face amount of bonds, that’s the CREDIT LOSSES, usually defaults, not serious delinquencies. Losses are now 10% of face (there are more losses in the pipeline, but it’s hare to make claims on unrealized losses). And of that 10%, some of those are legitimate losses, due to death, disabilty, and job loss, and not reps and warranties. Legitimate losses are easily half the total, could easily be much higher.

    BTW I always assume nastygrams are paving the way to litigation, but no one has drafted a claim yet…that is months away.

  15. Ahhh, I misunderstood your “empty threats” post as there being no real claims here.

    Some TV eejits have been saying “Its just a lawyer letter” — which it is, but oh so much more.

    I took it as a contractual notice and an opportunity to cure (after which period the litigation shitestorm begins)

    But I think we can all agree- — this has the potential (at least) to range from costly ($1-3B) to disastrous ($20-50B) for BofA and other banks

  16. [...] the letter that the investors sent to Countrywide is laying the groundwork for litigation, any litigation is going to be more of an uphill battle and [...]

  17. dead hobo says:

    I’m getting out of the real estate disaster prediction business. I kind of had it right at first (paperwork problem + big time securitization mess), but then out of ignorance, started second guessing myself and went clueless. This will now just be a spectator sport for me.

    But, please note this is a First in that Uncle Stupid is actually trying to extricate itself from a financial mess it is being victimized by without just paying off the perpetrator to just go away. Maybe the Fed will use QE2 to buy more really bad paper, just to be consistent.

  18. rktbrkr says:

    Is this the exception or the rule? Will there be others going after BAC/CW? Will there be others going after the other mortgage mills?

  19. rktbrkr says:

    Interesting they went public with this, the Fed was very secretive when Bloomberg wanted info and Fed defied FOIL law.

  20. rktbrkr says:

    If the failed mortgage mills had been taken over by FDIC we’d be a lot farther down the road towards recovery.

    However all these mortgage problems got rolled up into our 4 biggest banks and now it’s them that are at risk. Maybe they were canny like a fox thinking if things went better than expected they’d make out like bandits and if things went sour they’d get bailed again.

    I don’t think the politics are right for another costly bailout but maybe I’m just being naiive.

  21. JimmyDean says:

    Thanks BR – I like your take that this is really about property rights. I’m affraid they’ll be trampled on here for expediency, but one can always hope they hold up, imo they are central to the success of capitalist societies…
    I didn’t hear you comment on your asset allocation in the video. Has your asset allocation changed much as a result of this? Last I saw you were 50% long 50% cash? Is that still the case?

  22. Marcus says:

    “I took it as a contractual notice and an opportunity to cure (after which period the litigation shitestorm begins)”

    That’s EXACTLY what this is, Barry. I haven’t read through a PSA since 10 years ago when I set-up CMBS bond payment structures for one of the big banks, but an “Event of Default” is a defined term in those agreements and establishes the basis for further action. The 60 day window for response is likely a stated part of the requirement to meet that definition.

    I’ve worked in CMBS securitization, Residential loan funding shops, and even a GSE’s underwriting support and have seen the kind of dismissive negligence that’s coming out now across all of them through the boom times. Get the money first, worry about doing it right later. Speed of processing was stressed over quality. At one shop we had a temp worker who was regularly funding 60-80 loans/day when the realistic and stated expectation was 15-20. Rather than raise concern that maybe she wasn’t doing a thorough review (ya think!) they just praised her saying, “Man, she can fund some loans!”

    Sadly, I’ve had several conflicts with management throughout my career on all these sorts of issues and I always seemed to get the backlash from speaking up. (I’m about to join the long term unemployed in 2 weeks.) But these last 2 years have helped me to realize that I was actually one of the few seeing “The Big Picture”. If only I could find all those old managers, I could unleash a shitestorm of “I told you so’s”. :-)

  23. AHodge says:

    so the big picture is
    steps to tag countrywide/BAC for reps n warranties, and looting a distressed hulk with huge fees bankruptcy style?

    i think nonlawyers here need a playbook to grasp much of this kabuki dance?
    1) who are the trustees?
    2) i assume Countrywide the Master bator, i mean Servicer, and also the Seller?
    3) Seller = originator?
    4) Who signs the PSA? with what perfomance agreed?
    if its terms are secret can CTY Master S and CTY seller say anything they want about compliance?
    5) are the BUY SIDE suit bringers thinking what an incredibly stupid purchase “this” looked like?
    i still cant figure out what “this” is, obviously they didnt either.

  24. AHodge says:

    are the trustees

    Bank of New York
    Countrywide
    Pillbury LLP

    as addressed in the letter?

  25. AHodge says:

    from the above buy side list

    Freddie Mac Corporation
    Ray Romano, EVP Chief Credit Officer

    no offense to famous ray of course….
    somehow this seem so right

  26. GregP says:

    “the Holders further notify the Trustee of the Master Servicer’s failure to perform its covenants and agreements”.

    Re. Yves’ comments-
    The Trustee has an obligation to change servicers if this is not cured.
    Then:
    1) the individual loan data will be more readily available to assess putbacks.
    2) BAC loses the servicing income.
    3) Servicer/originator conflict is removed.

    Wondering what the crowd thinks about the likelihood that-
    a) JPM (or who?) gets the servicing biz, or
    b) Jamie just gets BAC for, say, $2/sh , deja vu ;-)

  27. [...] may find it odd that I keep returning to the matter of the widely touted letter last week signed by investors Pimco et al pushing Countrywide as servicer to put back loans on some 115 mortgage securitizations totaling $47 billion, of which the [...]

  28. janeflaherty says:

    Lovely. If you haven’t already, read John Maudlin’s The Subprime Debacle: Act 2, Part 2 – John Mauldin’s Weekly E-Letter.

  29. [...] Investment banks large and small originated a lot of subprime garbage in the 2005-2007 era. This week PIMCO, Black Rock, Freddie Mac, the New York Fed, and – what I think is key and no one has picked up on – Neuberger Berman Europe, Ltd., an investment manager to a managed-account client, came together and sued Countrywide for not putting back bad mortgages to its parent, Bank of America. This is the first of what will be a series of suits aimed at getting control of the portfolio and peeking into the mortgages. (Text of lawsuit at http://www.ritholtz.com/blog/2010/10/full-text-of-letter-to-bofa-from-ny-fed-maiden-lane-freddie-mac…) [...]

  30. [...] showed that outside studies by a wide range of parties showed massive fraud by the [...]

  31. [...] showed that outside studies by a wide range of parties showed massive fraud by the [...]

  32. [...] showed that outside studies by a wide range of parties showed massive fraud by the [...]