Tuesday, October 19, 2010

Dcoumentation Problems downplayed by CitiGroup CFO

CitiGroup claims it did not use robo-signers, but still has problems
Of particular interest from this article:
One analyst on Monday's call, James F. Mitchell of Buckingham Research Group, brought this up.
"[P]eople are worried about not just the documentation issue but the poor quality of the underwriting of the loans," Mitchell said about Citi's loans that were ultimately securitized and sold. "Does that somehow ... break the representation and warranties in the prospectus, and therefore investors can put the whole securitization back, not just on documentation but on loan quality issues? Did you have a discussion with your counsel on that?"
Gerspach, Citi's chief financial officer, responded.
"We had several counsels. I couldn't find anyone that indicated that there was this big red button that gets pushed and completely blows up a transaction based upon underwriting quality," Gerspach said. "But I'm going to leave that one up to all the lawyers in the world to argue about," he added, dodging the larger question about Citi's underwriting practices.
But the underwriting is not the problem, its the problems with the documents that will haunt the banks - as noted here at the blog The Stopped Clock:

the problem of widespread failures to convey notes to the securitization trust isn’t a “technicality”; it means what were sold as MBS are potentially just unsecured consumer paper. And it goes further than that: if no notes were conveyed at closing, the trust under New York law (and all these trusts elected NY law for the trust operation) was “unfunded” meaning it does not exist (multiple top experts on NY trust law concur on this issue).

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