After Fannie, Gussmann Primes Amherst Mortgage Buyback Plan
August 12 2011 - 3:04PM
Dow Jones News
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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