Garrett Offers Amendment to Protect Investors
WASHINGTON, DC – Rep. Scott Garrett (R-NJ) today offered an amendment to H.R. 5326, the Commerce, Justice Science and Related Agencies Appropriations Act of 2013, that will prohibit the Department of Justice from entering into any future residential mortgage-backed security settlement agreement with state attorney generals and banks that would take money away from private investors without their consent.
“While I sympathize with underwater home buyers hit hard by the recession, there is no reason why private investors who fund our mortgage market should have their private contracts broken and their money stolen,” said Garrett after offering his amendment on the House floor. “They were deliberately left out of the administration’s negotiations on the recent mortgage settlement and weren’t even given a seat at the table when the decision was made to have them foot part of the bill. Actions like this will cause investors to factor in new ‘political risk’ on mortgage bonds if and when they invest going forward, which will drive up costs for new home buyers and make it more expensive to achieve the American dream.”
Specifically, Garrett’s amendment would not allow the Department of Justice to be a party to a single or multi-state court settlement where funds are removed from any residential mortgage-backed securitization trust. This amendment protects investors such as state retirement systems, 401(k) plans, public and private pension plans, insurance company annuities, and mutual funds by ensuring that the Department of Justice will not interfere with private contract rights or the investor’s right to due process before the government can take their property.
Earlier this year, the Obama administration and state attorneys general entered into a mortgage settlement with some of the nation’s largest mortgage servicing companies. These servicing companies are owned by the country’s largest banks. The administration stated that this settlement would require servicers to use their money to reduce the principal amount of mortgages for over-extended home buyers held in securitization trusts. Mortgages act as collateral for the bonds that a securitization trust issues to investors. Unfortunately, the investors who own these bonds and receive payment from the trust were not part of the settlement discussions. As a result, while the settlement claimed to take money from the big banks to reduce the mortgages of underwater homeowners, what it really did was permit the banks to take money directly out of securitization trusts and away from investors. In essence, the settlement treated investors like perpetrators of a fraud as opposed to victims. Private contracts were broken and the investors who didn’t have an opportunity to be heard are now suing to enforce their rights in court.