New Jersey Court Decision May Be Unique, but Still Bad for BofA and RMBS
Written by
David Fanger
Senior Vice President
David.Fanger@moodys.com
and
Yehudah Forster
Vice President - Senior Analyst
Yehudah.Forster@moodys.com
For:
MOODY ’S RESI LANDSCAPE, Dec. 9, 2010 Issue
On 16 November, a bankruptcy court in New Jersey dismissed Bank of America’s (BofA, Aa3 negative, C-/Baa2 stable) claim for standing to enforce a mortgage originated and securitized by Countrywide in 2006. The judge concluded Countrywide had failed to properly endorse and transfer possession of the mortgage note to the securitization’s trustee, leaving it unenforceable under New Jersey law. Last week BofA was reported in the press as saying that the facts upon which the judge based her conclusion may not have been correct.
We believe the case will lead to increased litigation, higher servicing costs, and more foreclosure delays. This will pressure BofA’s earnings. Increased foreclosure timelines and costs associated with potentially defective loans will also increase losses for Countrywide-sponsored RMBS. This is negative for both BofA and Countrywide-sponsored RMBS.
