House subcommittee hearing examines administration’s treatment of investors

Stephen Lubben,

A panel of mortgage investors complained about having to shoulder a portion of a national $25 billion settlement with mortgage servicers over foreclosure abuses during a Thursday House subcommittee hearing.

The Thursday hearing in front of the House subcommittee on capital markets and government sponsored enterprises was intended to address the so-called “unfair” treatment of investors by the Obama administration in the national housing settlement, Argentina sovereign debt default and Chrysler bailouts.

Subcommittee Chairman Scott Garrett was critical of the Obama administration during the hearing.

“The administration has taken a variety of actions where they have sided with the bigger banks, deadbeat foreign governments that we know of, and big labor, all at the expense of these, our own, U.S. investors,” Garrett said.

The $25 billion mortgage settlement finalized in March forced mortgage servicers to issue approximately $10 billion in mortgage principal reductions via “credits” to provide relief to American homeowners.

“We believe that all principals were well-intentioned in designing a plan for relief, but unfortunately, uninvolved pension plans, 401(k) funds and mutual funds were made a party to the settlement and forced to shoulder some of the burden for the bad acts of others,” Vincent Fiorillo, a mortgage-backed securities trader and portfolio manager at DoubleLine Capital, said on behalf of the Association of Mortgage Investors, HousingWire reports.

Adam Levitin, a law professor at Georgetown University, said, however, that the settlement was minor retribution for egregious offenses.

“The settlement provides too little relief for too few homeowners,” Levitin said, according to HousingWire. “Despite the settlement’s unprecedented size, it is a slap on the wrist for one of the most pervasive violations of procedural rights in history.”

Additionally, in 2001, Argentina defaulted on its national debt and filed an appeal of an injunction that would prevent it from paying those bondholders who participated in the restructuring before it paid holdout investors. A group of bondholders originally attempted to apply federal bankruptcy law that prohibits paying one unsecured creditor over another, though the U.S. Department of Justice filed an amicus brief in support of Argentina, Reuters reports.

Stephen Lubben, a bankruptcy professor at Seton Hall University Law School, warned that “investors may be using the Argentinian situation to make bad law,” adding that should Congress change the status quo, it could “seriously impede this country’s position with regard to the sovereign debt markets,” according to Dow Jones.

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