Josh Rosner: “Could Violations of PSA’s Dwarf Lehman Weekend?”

Naked Capitalism analyzes a recent client note by Josh Rosner, “a recovering GSE analyst.”

However, the significant part of Rosner’s comment is his belief (and Rosner typically has very good contacts) that the notes were endorsed in blank. That means they were presumably endorsed only by the originator. This means, effectively, that none of the intermediary transfers took place. This is independent of verification of what we’ve been told. …

The bigger implications will be for the servicers and trusts of securitizations for so-called non-conforming mortgages, aka private label or non GSE paper. If Rosner is correct and no one endorsed the notes correctly, at best this is now effectively unsecured paper. I’ve had securitization lawyers argue that even though the trusts may have impaired rights to foreclose, a lower standard of rights applies to ongoing payment, so the trust may be OK as far as non -defaulted borrowers is concerned. But the New York trust experts (and all the trusts are governed by New York law, this was the standard choice for these deals) say if no notes got to the trust by closing, it was unfunded and does not exist.

Regardless, this mess looks likely to be an attorney full employment act. Stay tuned.