Federal Court Upends Existing Law on Pass-Through Mortgage-Backed Securities

On April 3, 2012, the US District Court for the Southern District of New York issued a decision holding that the Trust Indenture Act (TIA) applies to pass-through mortgage-backed securities certificates. Thousands of trusts have issued trillions of dollars in mortgage-backed pass-through certificates on the understanding that they are not subject to the TIA. SEC guidance and industry commentaries also have expressed that view. The Southern District’s decision to the contrary would upend industry practice if not reconsidered or reversed.