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Residential Mortgage-Backed Loan Securitization: Breach Of Contract Evidence

Author

Listed:
  • Rafael Romero
  • Katie Matt

Abstract

A financial company’s failure to fulfill its obligations related to the securitization of around 6,000 residential mortgage loans sold to a Trust for more than one billion dollars resulted in a breach of contract. The financial company had made several commitments regarding the accuracy of the information given to borrowers, including promises to rectify any non-conformance or repurchase defective Mortgage Loans. It had also guaranteed that it would notify the Trust of any breaches it discovered. An investigation of the Mortgage Loans found that at least 3,000 did not conform to the Mortgage Representations, impacting their value. Additionally, around 2,500 Mortgage Loan Files were unreviewable due to missing documentation. The Trustee informed the financial company about the breaches and demanded that they be remedied, but the company failed to cure any breaches, provide any missing files, or repurchase any defective loan. As a result, the Trust suffered a loss of about half a billion dollars, indicating that the financial company had no intention of complying with its contractual obligations. Therefore, the Trustee must be reimbursed for the losses incurred.

Suggested Citation

  • Rafael Romero & Katie Matt, 2022. "Residential Mortgage-Backed Loan Securitization: Breach Of Contract Evidence," Global Journal of Business Research, The Institute for Business and Finance Research, vol. 16(1), pages 105-111.
    • Handle: RePEc:ibf:gjbres:v:16:y:2022:i:1:p:105-111
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    More about this item

    Keywords

    Loan securitization; Residential Mortgage Back Security (RMBS); Breach of Contract;
    All these keywords.

    JEL classification:

    • K10 - Law and Economics - - Basic Areas of Law - - - General (Constitutional Law)
    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law

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