Why Talcott Franklin is encouraged by the recent BofA settlement
The recent Bank of America settlement with the government-sponsored enterprises is an encouraging sign for investors on the private-label side of securitization, according to the top lawyer representing their claims. Dallas-based attorney Talcott Franklin is pooling investors claims against private-label securitization issuers in order to create a clearinghouse to settle issues regarding the quality of those investments. His success is growing: "We now have 25% of the voting rights in over 3,200 deals," he said. But the leverage of gaining voting rights would prove unnecessary if issuers would settle out of court, something Franklin said is preferable for all parties involved. Private-label investors would be willing to get something similar to what Bank of America has done with the GSEs. Bank of America is paying $3 billion to settle repurchase claims brought by Fannie Mae and Freddie Mac on home loans sold to the GSEs by Countrywide Financial Corp. Fannie and Freddie are government-run and bond merchant Ginnie Mae carries the full faith of the U.S. government. However, "private" bond issuers, such as the big banks will likely begin to try to restart their side of that largely dead market. But, in the meantime, reps and warranties from past transactions need to be settled first, Franklin said. “While I don’t know the motive, I suspect that the bank sees settlement as a means to ensure its continued participation in loan sales to the GSEs," he said. "The question is whether this motivation applies to the private-label market," he added. "To the extent the private-label market returns and Bank of America wants to participate in it, the resolution of outstanding warranty claims would make sense so that investors will believe that the bank will stand behind its new product." Franklin added that his strategy is also changing this year. In 2010, his initiative was to develop critical mass and quietly probe to understand what parties were potentially damaging investors and borrowers. "We now have a very good sense as to who wants to produce better outcomes for investors and borrowers, and who is serving their own interests at the expense of investors and borrowers," Franklin said. "This year we intend to continue to support those who want to work with us while dealing deliberately but aggressively with those who have proven intransigent." Jacob Gaffney is the editor of HousingWire. Follow him on Twitter @JacobGaffney. Write to him.