Further to Phil Stein’s post on Friday, as we continue to parse through the political rhetoric, the fine print of the settlement agreement, and the hoards of misinformation promulgated by the press, we do not believe that investors in securitizations and/or their trustees are entirely left hanging in the wind.
While apparently the settlement with the big banks does not provide the cap on the ability of the servicers to modify investor owned loans (which the investors seemed to be expecting based on their limited negotiations with HUD,) investors should ensure that their Trustees and other representatives carefully monitor the modification process going forward.
This is not because (as HUD Secretary Donovan’s office no doubt would like us to believe) the Robo Settlement specifies that the servicing agreements in place between the big bank servicers and the securitization trusts continue to govern the servicing relationship, but because under the United States Constitution (yes, we still have one) our government (both federal and state) has no right to interfere with such contractual relationships in the first place.
While I can’t say that every servicing agreement is the same, it is generally the case that under these agreements, the servicer has a duty to service as an agent for the benefit of its principals, ie., for the sole benefit of the trustees and the investors, and it has NO right thereunder to act solely in its own interest. Accordingly, the servicer’s actions should be judged solely under the servicing standard established by the servicing agreements.
If it fails to comply with such standards, its compliance or non compliance with the Robo Settlement mandates should be irrelevant as a defense. Indeed, such compliance with the settlement terms, if disproportionately skewed toward investor loans versus the servicers’ own loans, may be useful evidence in an action for breach of the servicing agreements.
Further, in such circumstances, it is not inconceivable by any stretch that in addition to a breach of contract claim against the servicer, a constitutional claim could be asserted against the governmental participants in the Robo Settlement.
With three or four remaining big U.S. banks, our government to date has chosen to ignore antitrust laws (which seems like a perversion of justice being blind) and seemingly has become the enabler of the big banks, robo signing and other misdeeds in the current mortgage crisis.
Fortunately, we still have a Constitution and a judicial branch of government to protect those whom the political side of government have apparently abandoned (which seems to include everyone that is not a big bank).