This is simultaneously laughable and damaging. The argument basically boils down to: “Gee, the fact that no one bothered to observe the contracts means they never intended to. So we’ll just pretend those provisions don’t count.” Does that mean that people who promptly went into default obviously never intended to pay, and should therefore get free houses? Or that when a borrower sends a payment a day or two late, they clearly intended to pay on time, so no late fees should apply? I think a lot of people would agree to that theory of contracts as long as it applied to consumers as well as banks.
But notice the amazing admission: “then to have systematically failed to observe those expanded requirements.” This is even better than Kemp v. Countrywide! The head of the ASF tells the public in Congressional testimony that the entire industry group he represents “systematically failed” to honor their own agreements! We’ve suggested as much on the blog as a worst-case scenario, and now we have official confirmation.
But the reason that this is all so stunning is, utterly contrary to what Deutsche implies, was that these “expanded requirements” were standard in the industry from its early days and were adhered to. That’s why investors and industry participants have had difficulty believing that the notes were not conveyed on a widespread basis. In the 1980s and the 1990s, the contract terms governing conveyance were observed. For instance, industry members recall closings being delayed because a particular box of notes had not gotten to its intended destination. While compliance may not have been 100%, the notes were endorsed and the paper was moved.
As we’ve indicated again and again, what appears to have happened is the originators and packagers changed their practices without modifying their agreements to reflect this change. That means investors participated in deals that were misrepresented in fundamental ways. Conveyance of the note is critical to having clear rights to foreclose; any savvy investor would have been concerned about that issue had the industry behaved properly and revised the contracts to reflect its new procedures.
Join us on our
Share this page with your friends
on your favorite social network: