After Fannie, Gussmann Primes Amherst Mortgage Buyback Plan

Amherst Advisory & Management, the asset-management unit of mortgage bond specialist Amherst Holdings LLC, this week said it will soon make its first claims against lenders responsible for faulty home loans, a sign that more investors are joining the uprising against banks.

The momentum by Amherst's six-month-old "recovery" business comes as BlackRock Inc. (BLK), Pacific Investment Management Co. and other large investors in June reached an $8.5 billion settlement with Bank of America Corp. (BAC) over a dispute concerning loans made by its Countrywide unit.

Though subject to court approval, the settlement lit a fire underneath investors once reticent about the onerous task of holding banks accountable for their product, promising more "put-backs," or requests that lenders buy back the loans they sold, said David Gussmann, Amherst's lead manager. Amherst will make the claims in the next few months, he said.

"Where they were just talking to senior management about it before, this is now a catalyst" that is getting investors off the fence, said Gussmann, who spearheaded Fannie Mae's (FNMA) effort to force loan repurchases of loans in private residential mortgage bonds in 2007.

Amherst's model is designed to encourage investors that have been frustrated by inattentive trustees and legal and operational costs of the put-backs. After the advisory team aggregates investors' bond holdings to a critical mass, Amherst's broker-dealer repackages the assets into a new shared security whose principal and interest payments help cover costs incurred as the advisory group assembles cases against lenders.

The firm first has to organize enough investors to aggregate 25% of voting rights, a requirement written into most bond contracts for action and a hurdle for small investors. Amherst Advisory & Management says it is "collateral manager" on bonds with current face value of $8 billion.

The potential to recover losses from banks is vast, as evidenced by the effort of other investors in the Bank of America settlement and the myriad lawsuits charging lenders and Wall Street dealers of representing assets as far safer than what was sold. Banks have boosted reserves for repurchasing loans, and some analysts have pegged total bank liability close to $100 billion.

Bank of America last week said it still had $11.6 billion in unresolved repurchase claims from private investors, Fannie Mae and Freddie Mac (FMCC) last quarter, up from $10.7 billion at the end of 2010.

But investors have been frustrated with put-back efforts at almost every turn. In addition to the voting-rights restrictions, investors have accused trustees and loan-servicing companies of dragging their heels when asked to investigate breaches of contract or provide loan information.

Investors often won't agree on strategies even when headway is made. Some bondholders are challenging the settlement between the big bond investors and Bank of America, citing fairness and conflicts of interest. New York Attorney General Eric Schneiderman has asked a judge to intervene.

"You have to work with other investors, and you start to run into roadblocks," such as sharing costs and how to negotiate settlements, said one bond manager who has hired Amherst to overcome those problems.

"I think we've just scratched the surface," Gussmann said.

-By Al Yoon, Dow Jones Newswires; 212-416-3216; albert.yoon@dowjones.com

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