March 30, 2010 / 9:35 PM / 9 years ago

US mortgage investor rights must be heard, group says

NEW YORK, March 30 (Reuters) - Investors who buy residential mortgage and other consumer debt securities on Tuesday urged the U.S. government to pay more attention to their interests as the securitization market is fixed.

In a white paper, the Association of Mortgage Investors said better disclosures and enhanced buyer rights are required to restore confidence to the market that has been a top funder of U.S. mortgages in years past. Securitizations as constructed by banks, rating companies and debt servicers in the past have had little regard for the investor, they said.

The investor group, which includes Fortress Investment Group, are turning more vocal in their quest for representation as other sources of consumer credit face challenges. Regulators are seeking ways to reduce the economy’s reliance on government funding via Fannie Mae and Freddie Mac, while bank portfolios are stretched already.

“Investors provide the capital that make the securitization markets work yet have been ignored in market structure discussions,” the association said in the paper.

“It is important for the government to consider the policy recommendations of investors, whose participation and capital are needed for there to be a viable mortgage-backed securities market,” Micah Green, a partner at Patton Boggs LLP, said in a statement. Patton Boggs represents the association.

Other big investors, including BlackRock Inc., have complained that unfair treatment of senior debtholders when banks conduct mortgage modifications could hinder the return of private capital at a time when the Federal Reserve is pulling its purchase support of mortgage markets.

Fixes to securitizations should include giving investors access to information on loans in securities, which is often denied to them by the loan’s servicer. That investors must pay services such as Loan Performance for data in loans, in light of the no-cost public disclosures on corporate bonds, is “outrageous,” they said.

Arguments that loan data goes beyond what investors can process are absurd, they added.

The association wants new rules to address conflicts of interest by servicers, including when the companies ask lenders to buy back loans that failed stated requirements. Servicers appear to have been delaying the put-backs to help their affiliates avoid losses, the association said.

The largest servicing companies are parts of some of the largest banks, including Bank of America Corp., Wells Fargo & Co., JPMorgan Chase & Co. and Citigroup Inc.

When servicers have affiliates that hold second liens, they appear to be doing loan modifications and other loss mitigation efforts that maximize the value of subordinated positions at the expense of senior investors, the association said.

Mortgage securitizations that do not have the benefit of government backing have largely ground to a halt as the housing crisis funneled losses to investors in opaque securities. A few private issues backed by existing loans have emerged in recent months but bonds that fund fresh loans have been elusive.

“To believe that real estate or the economy itself can find a self-sustaining recovery without first repairing this important tool of financial intermediation is unrealistic,” Josh Rosner, a partner at independent research firm Graham Fisher & Co. said in a research paper for the Roosevelt Institute earlier this month.

Editing by Kenneth Barry

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