American Bar Association
25 minute read | April.11.2016
In the wake of the 2007–2008 economic crisis, disputes concerning responsibility for loans in default that are pooled in residential mortgage-backed securities (“RMBS”) became one of the most active areas of mortgage-related consumer finance litigation. This survey will provide a brief primer on residential mortgage securitization for background purposes, will discuss the landmark decision in ACE Securities Corp. v. DB Structured Products, Inc.,1 and will provide an overview of other noteworthy RMBS-related developments.
Primer on RMBS Transactions
RMBS litigation involves disputes arising from the securitization of residential mortgage loans.2 One court recently described the securitization process as
The RMBS process begins when lending institutions, or “originators,” make home loans to consumers that are secured by mortgages. An RMBS “sponsor” or “seller”—usually an investment bank affiliate [of the originator]—purchases th[o]se mortgages in bulk from one or more originators. . . . Sponsors [then] sell the loans to a “depositor”—often another affiliate of that same bank. The depositor is also . . . the securities’ “issuer.” An issuer typically re-underwrites the loans made by the originators, independently assessing the borrowers’ ability to meet mortgage obligations. . . . [T]he depositor [then] “deposits” all of the loans into [a] trust.3
Originally published on www.americanbar.org. Reposted with permission.