Bank of America 2010 Annual Report Download - page 41

Mortgage notes, assignments or other documents are often required to be
maintained and are often necessary to enforce mortgage loans. We have
processes in place to satisfy document delivery and maintenance require-
ments in accordance with securitization transaction standards. Additionally,
there has been significant public commentary regarding the common industry
practice of recording mortgages in the name of Mortgage Electronic Regis-
tration Systems, Inc. (MERS), as nominee on behalf of the note holder, and
whether securitization trusts own the loans purported to be conveyed to them
and have valid liens securing those loans. We believe that the process for
mortgage loan transfers into securitization trusts is based on a well-estab-
lished body of law that establishes ownership of mortgage loans by the
securitization trusts and we believe that we have substantially executed this
process. We currently use the MERS system for a substantial portion of the
residential mortgage loans that we originate, including loans that have been
sold to investors or securitization trusts. Although the GSEs do not require the
use of MERS, the GSEs permit standard forms of mortgages and deeds of
trust that use MERS and we believe that loans that employ these forms are
considered to be properly documented for the GSEs’ purposes. We believe
that the use of MERS is a widespread practice in the industry. Certain legal
challenges have been made to the process for transferring mortgage loans to
securitization trusts asserting that having a mortgagee of record that is
different than the holder of the mortgage note could “break the chain of
title” and cloud the ownership of the loan. Under the Uniform Commercial
Code, a securitization trust or other investor should have good title to a
mortgage loan if, among other means, either the note is endorsed in blank or
to the named transferee and delivered to the holder or its designee, which may
be a document custodian. In order to foreclose on a mortgage loan, in certain
cases it may be necessary or prudent for an assignment of the mortgage to be
made to the holder of the note, which in the case of a mortgage held in the
name of MERS as nominee would need to be completed by MERS. As such,
our practice is to obtain assignments of mortgages from MERS prior to
instituting foreclosure. If certain required documents are missing or defective,
or if the use of MERS is found not to be effective, we could be obligated to cure
certain defects or in some circumstances otherwise be subject to additional
costs and expenses, which could have a material adverse effect on our results
of operations, cash flows and financial condition.
Private-label Residential Mortgage-backed Securities
Matters
On October 18, 2010, Countrywide Home Loans Servicing, LP (which changed
its name to BAC Home Loans Servicing, LP), a wholly-owned subsidiary of the
Corporation, received a letter, in its capacity as servicer under certain pooling
and servicing agreements for 115 private-label residential MBS securitiza-
tions (subsequently increased to 225 securitizations) from investors purport-
edly owning interests in RMBS issued in the securitizations. The letter
asserted breaches of certain loan servicing obligations, including an alleged
failure to provide notice to the trustee and other parties to the pooling and
servicing agreements of breaches of representations and warranties with
respect to mortgage loans included in the securitization transactions. On
November 4, 2010, the servicer responded in writing to the letter, stating
among other things that the letter had identified no facts indicating that the
servicer had breached any of its obligations, and asking that the signatories of
the letter provide evidence that they met the minimum voting interest require-
ments for investor action contained in the relevant contracts. BAC Home
Loans Servicing, LP and Gibbs & Bruns LLP on behalf of certain investors
including those who signed the letter, as well as The Bank of New York Mellon,
as trustee, have agreed to a short extension of any time periods commenced
by the letter to permit the parties to explore dialogue around the issues
raised. There are a number of questions about the validity of the assertions
set forth in the letter, including whether these purported investors have
standing to bring these claims. The servicer intends to challenge the asser-
tions in the letter and to fully enforce its rights under the relevant contracts.
For additional information about representations and warranties, see
Note 9 – Representations and Warranties Obligations and Corporate Guaran-
tees to the Consolidated Financial Statements, Representations and War-
ranties beginning on page 56 and Item 1A. Risk Factors of this Annual Report
on Form 10-K.
Bank of America 2010 39