The highest court in Massachusetts ruled against Wells Fargo & Co. and U.S. Bancorp in two foreclosure cases that cast doubt over whether some home loans were properly handled when packaged into securitizations.
Justices in the state’s Supreme Judicial Court upheld a lower court’s decision to void foreclosure sales of two homes in Springfield, because owners of the loans couldn’t prove that the mortgages had been assigned to them. Both loans were assembled into mortgage-backed securities sold to investors.
Bank stocks fell on worries that Friday’s ruling could make it harder for financial firms to foreclose on mortgages that wound up in securities. The defeat also might provide ammunition to mortgage-bond investors who have accused and even sued servicers for what the investors claim is systematically shoddy loan documentation.
The ruling against the fourth- and fifth-largest U.S. banks in assets came amid a delay in the crafting of new standards for mortgage lending as top U.S. regulators clash over protections for homeowners facing foreclosure.
The logjam is a sign of how strongly the financial crisis still looms as regulators work to implement the Dodd-Frank financial-overhaul law passed last summer. To help prevent another housing collapse, lawmakers included a provision requiring issuers of mortgage-backed securities to keep 5% of the risk, since investors would suffer losses when loans go bad.
Six federal agencies must sign off on the provision before it is released for comment, but their tentative goal of completing a proposal by the end of December came and went with no agreement. The delay was caused partly by disagreement about whether to include new protections for homeowners on the brink of foreclosure within this so-called risk-retention rule or separately, people familiar with the negotiations said. The Dodd-Frank law requires that the regulators finalize the risk-retention requirement by April.