June 2017 Remittance – Day #1 Observations
Uh Oh: Wells Fargo Notice – dated June 26, 2017
Wells Fargo, as trustee, just seized $91 million of payoff proceeds from called deals (BOAA and BOAMS shelves only) to hold in a $94 million reserve account to be used to meet their current and future expenses, including attorneys’ fees and expenses, incurred in connection with litigation and/or rep & warranty claims relating to the Trust. This $91 million was meant for investors, but instead, as directed by Wells Fargo, passed through as a loss ranging from 4% to 30% of the payoff proceeds. According to Wells Fargo, this power to seize investor cash is provided to them by Section 9.11 of the PSA (see page 3 for the exact language granting them this power).
Investors should be concerned with this new policy as 1) the logic as to how much gets reserved is unknown, 2) there is no third-party oversight to ensure the fees and expenses are legitimate and reasonable, and 3) there is no time limit as to how long the trustee can hold these funds. Investors should also worry that other trustees may adapt this policy.
Excerpts from the Wells Fargo Notice posted 6/26/2017
In connection with the Clean-Up Call and pursuant to, inter alia, the Trustee’s rights under Section 9.11 of the PSA, the Trustee will establish a reserve account (the “Trustee Reserve Account”) in the amount of (see list next page) from the funds received in connection with the Clean-Up Call. [How did the Trustee determine the reserve for each deal?]
Funds held in the Trustee Reserve Account will be used to meet the Trustee’s current and future expenses, including, inter alia, attorneys’ fees and expenses, incurred in connection with litigation and/or claims relating to the Trust. [Who audits the trustee to ensure fees and expenses are legitimate and reasonable?]
The Trustee will withdraw and use funds from the Trustee Reserve Account subject to the same restrictions and limitations as set forth in the PSA. [Who audits?]
The time period for which funds will need to be held in the Trustee Reserve Account by the Trustee is currently unknown.
When the Trustee determines that such funds are no longer necessary to meet current or future expenses, funds remaining in the Trustee Reserve Account, if any, will be distributed to the Certificateholders who held Certificates as of the Final Distribution Date. [How long?]
20 Deals Called by NRZ – June 2017
Investors now only get a percentage of the payoff proceeds as Wells Fargo has decided to reserve a portion to meet their potential current and future expenses incurred in connection with litigation and/or claims relating to the Trust.
The formula that Wells Fargo used:
$3,000 per loan for re-underwriting plus $130,000 for miscellaneous expenses. It works -see yellow column.
Wells Fargo assumes every loan originally in the deal will be re-underwritten, which includes lifetime perfect pay loans. 14 of these deals are PRIME.
But $3,000 per loan? That’s the equivalent of a top NYC attorney re-underwriting each loan for a little under 3 hours.
Section 9.11 of the PSA
The Wells Fargo notice states that this section gives the Trustee the right to establish a Reserve Account from funds received in connection with the Clean-up Call.
Attached, is what we believe is the lawsuit triggering Wells Fargo to create these 20 reserve accounts. The lawsuit was re-filed in the Supreme Court of the State of New York in December 2016. There are 261 deals listed in the complaint.
Nature and Summary of the Action:
“This action arises from Wells Fargo’s failure to discharge its duties as Trustee of 261 private-label residential mortgage-backed securities (“RMBS”) Trusts governed by Pooling and Servicing Agreements (“PSA”) created between 2004 and 2007 (the “Trusts”). The action asserts claims against Wells Fargo for breaches of its express and implied contractual duties under the PSAs, and its duties under common law.”
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