PIMCO, NY Fed Notifies Countrywide of Failures

As discussed previously, this is no longer about deadbeat borrowers: Mortgage giant PIMCO has just issued a giant F$%@ You to Bof A’s Countrywide division. Participating in the FU is the NY Fed.

And in case you forgot, PIMCO is an advisor to Uncle Sam.

There are two issues (Reps & Warranties) that could be the basis of the letter:  Procedural errors in the formation of the structured product, and Substantive misrepresentations as to the contents of RMBS/CDOs.

The procedural problems include errors such as failed assignments, broken title chain, lost notes, etc. I believe in many instances these can be cured by throwing money (i.e., staff, lawyers, etc.) at the problem. But there will be some cases where it becomes more challenging to get the toothpaste back in the tube.

The structural issues are primarily problems of how the structured product was described by its underwriters. If they warrantied to the buyer that only 15% of the notes were subprime, and the average Loan-to-Value (LTV) was 82%, and in reality its was 40% subprime and 96% LTV, then the underwriters have a big problem on their hands. The contracts are typically fairly specific as to what the structured product is composed of, and the warranties typically detail what the buyers rights are in the event that the warranties are not met.

I would bet that there is a notice requirement, and the letter from PIMCO and NY Fed is likely beginning that notice process.

Things are going to get very very interesting here . .


See also:

Pimco, New York Fed Said to Seek BofA Loan Repurchase.

Bank of America Sued by Chicago-Area Wholesale Bank

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