Mortgage bond holders get legal edge; buybacks seen

Reuters was first to report that investors holding a third of the risky mortgage bond market tied to the financial crisis have amassed the power necessary to demand repurchases of the loans in their portfolios. This coalition of the disparate group has likely put big banks on edge, as they would take the brunt of the investor salvo. The July 21 Reuters story was followed two days later by Bloomberg, which cited the scoop, and five days later by The American Banker.

U.S. mortgage bond investors have quietly banded together to gain the long-sought power needed to challenge loan servicers over losses the investors claim resulted from violations in securities contracts. A group holding a third of the $1.5 trillion mortgage bond market has topped the key 25 percent threshold for voting rights on 2,300 “private-label” mortgage bonds, said Talcott Franklin, a Dallas-based lawyer who is shepherding the effort…