Investors in residential mortgage-backed securities wait to see if the $25 billion mortgage servicing settlement will force them to take large haircuts on their investments.

The settlement between 49 state attorneys general and the largest mortgage servicers could help clear up robo-signing and foreclosure issues, while creating extra funding through fines to help troubled homeowners.

Mortgage investors believe the possibility of losing big on RMBS exists since it's still unknown how many mortgages will be hit with principal reductions, which would help borrowers but hurt investors who are compensated through payments on the loan.

"Our membership’s primary mission is to invest in mortgages on behalf of American investors," said Jonathan Lieberman, a member of the Association of Mortgage Investors and managing director of Angelo, Gordon & Co.

"Our members are contractually dependent upon banks and mortgage servicing companies," Lieberman added. "Once again, our members and their investors do not have control over the borrower and servicer relationship. Rather, our members have suffered material losses due to the bad acts of mortgage servicers."

Chris Katopis also with the association told HousingWire the problem is investors don't know what RMBS trusts or mortgages will be impacted, and they have no idea how the resolution will impact losses on their individual investments, he said.

"We are very concerned about a process that did not include investors and still has many important details outstanding," Katopis said. "We are all waiting to see what the impact and consequences are. We are disappointed that investors who did not contribute to these robo-signing problems are going to have to pay the price and see their and their partners investments harmed."  

While Katopis said AMI is not litigious, he knows some investors believe their contractual agreements may be violated and are assessing legal options. However, he says right now, AMI is just waiting to see the fine print on the term sheet to see how all of this will play out.

Lieberman expressed frustration over the idea the settlement could help out bad actors, while harming investors sitting at the end of the securitization chain.

"Capitalism and credit standards require people and institutions to honor contractual obligations, act responsibility and to unfortunately also to fail in order to cleanse the system of the lowest common denominator," Lieberman said. "At its root, credit is a privilege, not a right and not democratically allocated. You earn credit which allows you to borrow tomorrow’s money to pay for something you get today."

Lieberman said investors will not shy away from helping or doing the right thing, but pointed out that in five years investors have already lost $350 billion on private mortgage investments. In addition, he says, one million loan mods have already been given and still 2.5 million homeowners are not paying their mortgages today.