April 17, 2012

Global Foreclosure Settlement: Unsettling for RMBS

Summary: The recent global foreclosure settlement requires residential mortgage-backed securities (RMBS) investors to pay part of the price for the behaviors of the settling defendant servicers. As described more fully below, the settlement terms require the settling defendant servicers to:

  • Provide $5 billion in cash and $20 billion in debt refinancing and debt forgiveness

  • Adhere to more comprehensive and robust standards of loan servicing and foreclosure procedures

  • Subject themselves to the oversight of a monitoring committee for compliance with the standards established under the global foreclosure settlement

However, the settlement terms also allow the settling defendant servicers to take credit for debt refinancing and debt forgiveness for loans that are owned by other parties, including trusts that issue RMBS to investors.

This newsletter provides a summary of the settlement’s terms and an analysis of the potential impact of the settlement on RMBS investors.

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