Credit Chronometer

MORTGAGE LOANS AND MBS

Pre-financial crisis subprime RMBS litigation may be entering a new phase, moving on from fraud and repurchase actions brought by investors against sponsors and sellers to new actions by deal participants to recoup litigation losses from one another. The Credit Chronometer identifies litigation trends and the merits of potential claims.

After a long dormancy, subprime RMBS has made a comeback. The Credit Chronometer is on the lookout for history repeating itself and identifies best practices to avoid issues of the past.

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ABOUT THE AUTHOR

Joseph Cioffi is a partner at Davis & Gilbert in New York City where he is Chair of the Insolvency, Creditors’ Rights & Financial Products Practice Group, a multidisciplinary practice spanning corporate, insolvency and litigation. He has a unique perspective afforded by his experience in all stages of credit and market cycles, including in subprime lending investments, operations and litigation. Joseph and his group have been deeply involved in disputes and litigation resulting from the last financial crisis. He has written for or has been quoted by numerous publications, including American Banker, Asset Backed Alert, Asset Securitization Report, Auto Finance News, The Banking Law Journal, Consumer Financial Services Law Report, Financial Times, GlobalCapital, The Journal of Bankruptcy Law, Non-Prime Times, NPR, Structured Credit Investor and Westlaw Journal Automotive regarding auto loans, student loans, marketplace lending, subprime residential mortgage-backed securities (RMBS) and environmental, social and governance (ESG) investing.

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Listen to a recent ConsumerFi podcast for Joseph Cioffi‘s review of the key findings from Credit Chronometer’s Subprime Auto Market Study conducted at the outset of the pandemic in advance of the release of our latest findings to update market sentiment six months into the crisis.

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ABOUT THE INSOLVENCY, CREDITORS’ RIGHTS & FINANCIAL PRODUCTS GROUP

Davis & Gilbert’s Insolvency, Creditors’ Rights & Financial Products Practice Group represents clients in a broad range of corporate, insolvency and litigation matters. The group has been actively involved in many of the most notable and highly visible business events in recent years related to the last economic downturn and has vast experience in the area of subprime lending, including the operation of origination platforms, relationships with servicers and defending large-scale asset-backed securities litigation. The broad and diverse experience of their attorneys makes them particularly well-equipped to advise clients in rapidly evolving markets, such as, those for auto loans, student loans, marketplace lending, mortgage loans and environmental, social and governance (ESG) investing. Additional highlights of the practice include the following:

Litigation: The group regularly prosecutes and defends litigation involving complex financial transactions and instruments and has defended asset-backed securities litigation, including for residential mortgage-backed securities (RMBS), encompassing fraud and repurchase claims, involving nearly $2 billion in claims.

Bankruptcy: The group guides clients through financially distressed situations and helps formulate and execute creditor enforcement strategies, in particular, in the case of intermediaries facing obligations to third parties. The group has defended nearly $1 billion in fraudulent transfer claims brought by the trustee for the liquidation of Bernard L. Madoff Investment Securities LLC.

Corporate: The group also advises on a full range of financing transactions, including secured revolving and term credit facilities, receivable financing arrangements, intercreditor agreements, warehouse lending facilities and loan purchase agreements.

For more information about the Insolvency, Creditors’ Rights & Financial Products Practice Group, click here.

Special Report

Participants Expectations in a Time of Crisis - Second Annual Report

June 24, 2020

With the worst economic recession of our lifetime as a real possibility, we reopened our survey to compare market sentiment in this Covid-era to our results from 2019 and the pre-Covid 2020 survey. The study that follows is the result of broad participation from over 100 market participants of all types, including originators, investors, trustees, servicers and others in the field.

It's time for the market to adjust its mirrors, buckle up and realistically consider whether a subprime auto crisis is imminent. Download our second annual special report to learn more

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Mortgage Loans and MBS

The Next Strain of Repo Litigation

Jun 28, 2020 | By JOSEPH CIOFFI

As the economic crisis impairs the value of commercial mortgage-backed securities (CMBS) that collateralize loans to real estate investment trusts (REITs) to finance their investments, there is the prospect of increased margin calls, requiring REITs to provide additional funds to make up shortfalls in value. The case of AG MIT CMO, LLC et al. v. Royal Bank of Canada et al., No. 20-2547 (S.D.N.Y.), which recently settled, is worth examining for its echoes of the past and some important lessons ...

Mortgage Loans and MBS

On Our Watch: CMBS in the Time of COVID-19

Apr 28, 2020 | By JOSEPH CIOFFI

Perhaps no credit market is as much a bellwether for the economic crisis caused by the COVID-19 pandemic than commercial mortgage-backed securities (CMBS). While the impact of relief programs on consumer-based markets remains to be seen, CMBS offers a broad view into the health of consumers, vulnerable industries, the success of stimulus programs on small and medium-sized businesses and the overall economy. Deals in the pipeline may be in jeopardy as parties re-evaluate their positions and ...

Mortgage Loans and MBS

In A World...Without LIBOR

Apr 02, 2020 | By JOSEPH CIOFFI

It could be the trailer for a thrilling movie, but whether it turns out to be a horror flick or a mystery depends on what happens before December 2021. That’s when the financial community’s reliance on the London Interbank Offered Rate (LIBOR) is expected to be phased out. Proposals are on the table, but the prospect of litigation over LIBOR fallback provisions should prompt parties to promote now the creation of clear protocols and legislation. While the coronavirus (COVID-19) has the ...

Mortgage Loans and MBS

On Our Watch: COVID-19 Mortgage and Foreclosure Relief

Mar 29, 2020 | By JOSEPH CIOFFI

With the fallout of the 2008 mortgage crisis fresh in our minds and still shaping the market and policy, the government and market participants have acted swiftly to step in and offer some immediate relief for borrowers, while keeping liquidity as high as possible. Federal Action The Federal Housing Finance Agency has made plans to suspend foreclosures and evictions for single-family mortgages backed by Fannie Mae and Freddie Mac for 60 days. The HUD would do so for foreclosures and evictions ...

Marketplace Lending Mortgage Loans and MBS Auto Loans Student Loans ESG

Market Insights in a Time of Crisis

Mar 26, 2020 | By JOSEPH CIOFFI

Distance – the space between – defines our present in so many respects, but that’s not what will lead to success in any market. We have distance from each other, distance from our normal life of just days ago and distance from a future without COVID-19. But that distance has underscored the interconnection of people and markets and their actions like nothing has before. Sure, we knew we were all connected, and we knew the cause and effect of factors that drive our economy, but the coronavirus ...

Mortgage Loans and MBS

Mortgage Lending and RMBS: Market Momentum Heading into 2020

Dec 19, 2019 | By JOSEPH CIOFFI

With political turmoil, mixed economic signals and some industry-wide changes afoot, unpredictability seems to be the hallmark of the RMBS market. Since unpredictability can make people more dependent on predictions and past experience, we’ve identified some of the key events of 2019 and where they might lead in 2020. Mortgage Lending and Securitization In 2019 we reported on mortgage loan and RMBS performance numbers and noted how much non-qualified mortgages are driving business. While some ...

Mortgage Loans and MBS

Residential Mortgages and RMBS: 2019 60-Second Market Review and Insights

Sep 03, 2019 | By JOSEPH CIOFFI

Originations and Issuances, by the Numbers New mortgage originations reached $474 billion in Q2 2019, up from $437 billion in Q2 2018 (an 8.5% increase), according to data from the Federal Reserve Bank of New York. Housing debt climbed to $9.41 trillion in Q2 2019, up from $9.00 trillion versus a year ago (an increase of 4.6%). Housing debt remains the leading source of consumer debt in the United States at 68% of the $13.86 trillion in national household debt. In Q2 2019, 9.57% of mortgage ...

Mortgage Loans and MBS ESG

Tiny Spaces, but Lots of Room for Pace-Type Financing

Nov 20, 2018 | By JOSEPH CIOFFI

Move over mortgages – there’s a new kind of real estate that could benefit from a new type of funding. As higher interest rates and rising prices are making affordable housing a challenge in many markets, cities can fight the problem with a small-scale solution – accessory dwelling units (ADUs). What’s an ADU? ADUs are additions (attached or detached) to homes or converted spaces within already existing buildings that can be used as rental units. Local governments on the west coast have become ...

Mortgage Loans and MBS

Once Bitten, but Not Shy: Subprime Mortgage Lending Is Alluring Again

Oct 31, 2018 | By JOSEPH CIOFFI

Bright, shiny objects are hard to resist. Like the glowing orb cast by the anglerfish – the last thing its prey sees before the deadly bite – subprime lending is back with the potential for profits shining like a beacon. There are several ways for lenders and investors to grab a piece of the action, but are the latest moves tempting a fate similar to 2007? There’s smoke . . . Although the housing market has been a relative sea of calm in recent years, the mortgage market has slowed down. ...

Mortgage Loans and MBS

Residential Mortgages and RMBS: 60-Second Market Review and Insights

Jul 12, 2018 | By JOSEPH CIOFFI

Originations and Issuances, by the Numbers New mortgage originations reached $428 billion in Q1 2018, down from $491 billion in Q1 2017 (a 12.9% decrease), according to data from the Federal Reserve Bank of New York. However, housing debt climbed to $8.94 trillion in Q1 2018, up from $8.63 trillion versus a year ago (an increase of 3.6%). Housing debt remains the leading source of consumer debt in the United States at 68% of the $13.21 trillion in national household debt. As such, it can be a ...

Mortgage Loans and MBS

Subprime Residential Mortgages and RMBS in 2018: A Tale of Two Cycles

Jan 29, 2018 | By JOSEPH CIOFFI

Ten Years Gone, but the Memory Remains Litigation related to pre-financial crisis subprime mortgage lending and securitization has resulted in a decade-long hangover for many of those who participated in the boom times. The boom actually lasted only four or five years for most participants, but more than a decade later, many are just now drawing closer to resolution of legacy disputes. The lingering headache for lenders, sponsors, trustees and investors explains the caution that has been the ...

Mortgage Loans and MBS

Residential Mortgages and RMBS: 60-Second Market Review and Insights

Sep 25, 2017 | By JOSEPH CIOFFI

Originations and Issuances, by the Numbers New mortgage originations reached $421 billion in Q2 2017, down from $427 billion in Q2 2016 (a 1.41% decrease). Housing debt reached $9.14 trillion in Q2 2017, up from $8.84 trillion in Q2 2016 (a 3.82% increase). Housing debt, at 68% of the $12.8 trillion in national household debt, continues to be far and away the leading form of consumer debt in the United States. Even so, quarterly originations are less than half than they were at their peak of ...

Mortgage Loans and MBS

Oh, the Indemnity! Claims for Reimbursement May Follow RMBS Litigation Settlements

Jun 16, 2017 | By JOSEPH CIOFFI AND SEIJI NEWMAN

When the Roman philosopher, Seneca, said, “Every new beginning comes from other beginning’s end,” he probably didn’t have litigation cycles in mind, but the quote is apropos of recent actions by defendants in RMBS litigation on the heels, or in anticipation, of their concluding litigation. The statute of limitations may have expired on new claims for repurchase or fraud based on alleged loan defects in pre-financial crisis subprime RMBS deals, but a settlement or litigation award paid out by a ...

Mortgage Loans and MBS

Banking Exchange, “Tick, Tick, Tick for DOJ. With Time Running Out, Feds Ramp Up Mortgage Litigation”

Jan 07, 2017 | By JOSEPH CIOFFI

This Banking Exchange article, prompted by the DOJ’s recent lawsuit against Barclays, discusses the longer statute of limitations available to the government, relative to private plaintiffs, to sue participants in the subprime mortgage securitization process. As Joseph states, for the immediate future “the 10-year statute of limitations remains an arrow in the government’s quiver.” Click here to view the full article.