Powerful fund firm said to be angered by AFS' stance on mortgage settlement
Pacific Investment Management Co. is quitting the American Securitization Forum after the trade group declined to issue a statement about investors' views on the nationwide foreclosure settlement this month by five banks, two people with knowledge of the matter said.
Pimco, manager of the world's biggest bond fund, informed ASF Executive Director Tom Deutsch of its decision in early February, said the people, who requested anonymity because the talks were private. The episode underscored Pimco's concern that the trade group doesn't advocate for debt buyers as well as banks that underwrite mortgages, the people said.
The foreclosure agreement resolves state and federal probes into practices such as so-called robo-signing. The settlement was criticized by money managers who say their clients may bear part of the costs because lenders, including Bank of America Corp. (BAC) and JPMorgan Chase & Co. (JPM), can get credit for easing terms on home loans that were packaged into bonds owned by others.
“It treats people's 401(k)s and pensions like perpetrators as opposed to victims,” Scott Simon, the mortgage-bond head at Newport, California-based Pimco, said in a Feb. 9 phone interview, hours after the settlement was announced.
Simon declined to comment on his firm's decision to quit ASF, as did Deutsch, who faced other defections this year over governance complaints highlighted in a Feb. 2 letter of resignation to the board from Vernon Wright, its first chairman.
Independence From Sifma
The ASF, which counted Pimco Managing Director Daniel Ivascyn as a board member, was founded in 2002 as part of the Securities Industry and Financial Markets Association, Wall Street's biggest lobbying group. In 2010, the New York-based ASF decided to become independent of Sifma.
Bondholders asked the ASF to publish a press release on their views of the pending foreclosure settlement after being denied last month by Sifma, which cited the “potential legal issues involving the commercial interests of many of our members.” Both organizations include banks that sell, underwrite, service and trade debt.
U.S. Housing and Urban Development Secretary Shaun Donovan told reporters Feb. 9 that “a relatively small share, in the range of 15 percent, of the principal reduction” for homeowners resulting from the settlement will come from investor-owned loans.
“Nothing in it requires any trustee or servicer to reduce principal where it's not allowed legally by the underlying documents,” Donovan said. “The misunderstanding somehow that investors will be paying the banks' share is just false.”
Record Attendance
The ASF is among groups vying to influence policy makers amid the largest financial regulatory overhaul since the 1930s and following a crisis triggered partly by securitization, the packaging of assets such as mortgages into bonds.
The organization helped spur industry-led reforms meant to revive the almost-frozen market for home-loan securities that aren't backed by the government. In August, for example, its “Project Restart” initiative offered suggested best practices for new mortgage-bond contracts to aid in dealing with claims of faulty loans.
Deutsch said in an e-mail that he's “proud of the achievements of the ASF in the two years since becoming an entity distinct from Sifma.” ASF's annual conference last month in Las Vegas drew more than 5,000 people, a record, he said.
In 2009, asset managers seeking more outlets for their opinions started the Association of Mortgage Investors, which has issued press releases critical of the foreclosure deal. Yesterday, in a statement, the group called for monthly reports on steps banks are taking to adhere to the settlement. The Association of Institutional Investors, which includes larger asset managers such as Loomis Sayles & Co., was formed in 2010.
Separate Entity
Wright, an ASF founder and advisory board member who was chief financial officer of credit-card issuer MBNA Corp., said in his letter that the group's directors were frustrated in attempts to win governance changes. Wright confirmed his resignation letter and declined to comment further. Charlotte, North Carolina-based Bank of America acquired MBNA in 2006.
The ASF, as part of its divorce from Sifma, created a separate entity to house its operations, Wright said in the letter. As a result, directors haven't been able to see financial information, including staff pay, and have no legal control over the group, he said. The “corporate-governance concerns lead me to the conclusion that the executive director is not being properly supervised,” Wright wrote.
‘Never Been Stronger'
Gregg Silver, CFO of South Dakota-based 1st Financial Bank USA and a member of ASF's management committee, said in a phone interview that he resigned last month for reasons similar to those expressed by Wright. ASF Chairman Ralph Daloisio, a managing director at Paris-based Natixis, declined to comment.
“Financial statements have been seen by a number of members of the organization,” Deutsch said. “Those statements demonstrate that the financial position of the ASF has never been stronger.”
The completion of its separation from Sifma “has unfortunately taken longer than expected,” he said. Resolving the remaining issues “will allow the ASF to take the final steps toward becoming a complete, independent entity.”
--Bloomberg News--
