December 2, 2008 · 3:58 pm

Greenwich Financial Services and the applecart?

This New York Times business blog mostly devotes itself today to assessing, with a skeptical eye, various post-bailout deals being finagled by our auto companies and such. But I was struck by this promise at the end of the column and by the follow up comment from a reader:

Countrywide

On Wednesday, I’ll write about Greenwich Financial Services’ lawsuit against Countrywide Financial seeking to forestall the modification of mortgage loans under 374 Countrywide mortgage trusts.

If Greenwich succeeds it will put a real monkey wrench in loan modification programs. –Steven M. Davidoff

December 2nd,
2008
3:18 pm

  • Professor,

There is absolutely no excuse for the Times not putting the story of the lawsuit by Greenwich Financial Services against Countrywide on the front page.
This cracks open the entire securitization game. It is incendiary, to say the least that, because of the practice of bundling mortgages then slicing anddicing tranches of risk off those bundles, wealthy hedge fund investors are preventing mortgage relief.
If the majority of the general public understood this, heads would roll. Why is the Times burying this?

I’m pretty sure that the head of Greenwich Financial Services is the same guy who was (unjustifiably) ripped by some posturing Congressman a few weeks back for insisting that our Constitution prohibits the government from interfering with contracts between private parties (it does). But I’ll go look into it now.

UPDATE: The story’s here. It’s pretty much what I said – Countrywide, bowing to states Attorney Generals and Congress, has agreed to modify some 400,000 mortgages that are in default or threaten to go into default. GFS owns some of those mortgages or the income streams from them and says Countrywide can’t do what it wants to do. I’m with GFS but, as one lawyer quoted in the article says, “it should be interesting”. Indeed.

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2 responses to “Greenwich Financial Services and the applecart?”

  1. xyzzy
    December 2, 2008 at 9:28 pm

    While this is interesting. It is small potatoes to what might go down in Europe. Talking about a moritorium on payment of CDS.

    http://us1.institutionalriskanalytics.com/pub/IRAstory.asp?tag=326

    To Quote from the letter..

    We hear from a very well placed Buy Side investor with extensive business interests in the US and EU that three primary banking institutions in Europe, two French and one German, have such significant CDS exposure and other problems that they cannot even begin to fund the payouts anticipated over the next quarter.

    The funding squeeze reportedly is exacerbated by a near-collapse among weaker players in the hedge fund market, who were accustomed to receiving loans from one large French institution, which then stupidly converted the loans into equity. That’s right. This past summer, when the bank put out a call for redemptions of $4 billion in hedge fund investments, says the source, only $400 million was returned. And the French bank also used these same hedge funds and others to reinsure some of its own CDS exposure. Sound familiar? Yup, just like AIG.

    Unlike the approach taken by Paulson and Geithner to bailout AIG and JPM (via the Bear Stearns rescue), however, the investor claims that EU officials are considering a moratorium on CDS payments by the three Euroland banks in question. The banks would be given ten years to write down their CDS and hedge fund exposures and would receive additional infusions of capital by their respective governments.”

  2. roger
    December 3, 2008 at 5:10 pm

    xyzzy : CDS is red herring…look at the LEH CDS settlement and the buildup to that…that was supposed to bring down wall street but the vast majoirty of positions are offsetting

    regarding article:
    GFS is hosed….their investor docs would typically allow reasonable loan mods; they can sue, but they will lose

    Click to access ASF%20Subprime%20Loan%20Modification%20Principles_060107.pdf