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Lehman RMBS bondholders - $100+ million in expenses coming your way - UPDATE

Happy Presidents Weekend. Today’s commentary may just make you mad. Sorry to do that to you right before the long holiday weekend.

In our April 27, 2015 Commentary, we discussed in detail the Protocol established by the Bankruptcy Court that provides for loan level file review on all Lehman covered loans. In order to fulfill the Protocol, Non-Agency RMBS investors across 255 trusts must spend $100+ million to review 200,000 loans in hopes of recovering $5 billion to $12.143 billion. Based on the third status report provided by the RMBS Trustees (Docket #51640), that $5 billion to $12.143 billion recovery is looking more like a $90.4 million to $219.6 million recovery (see page 2 of today’s commentary). In hindsight, maybe the better route for the Trustees was to have settled on the $2 billion to $2.4 billion that Lehman said the damages were closer to (Docket #46526 filed 10/15/14).

The RMBS trustees have a 15-month timeline to review 213,639 loans, and as of November 30, 2015 have already reviewed 137,374 loans. The RMBS Trustees are obligated to provide loan-level proof of their claims pursuant to the repurchase clauses in the Governing Agreements. The RMBS Protocol creates a clear and consistent process that will facilitate the resolution of the RMBS Trustees’ Claims in an expeditious manner.

As of November 30, 2015 out of the 33,091 repurchase claims submitted by the RMBS Trustees and reviewed by the Plan Administrator:

  • 806 claims (2.4%) have been approved

  • 28,846 (87.2%) have been rejected

  • 3,439 (10.4%) were deemed to have insufficient documentation.

Hopefully, the RMBS Trustees will have better news to report in their next status update.

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