Tuesday, November 16, 2010

Bondholders Sue Banks to Recoup Losses on Mortgage Portfolios

In a letter written Monday, October 18, 2010, a group of institutional bond investors raised objections to the handling of 115 bond deals issued by affiliates of Countrywide Financial Corp., acquired by Bank of America Corp. in 2008. See Wall Street Journal article here. The group of institutional investors is stepping up efforts to recoup losses on soured mortgage portfolios amid concern about sloppy mortgage servicing and underwriting practices.

The group, which includes mutual-fund managers, government-related entities, insurance companies and investment partnerships, is seeking to have loans that didn't meet underwriting requirements repurchased and to be compensated for losses due to inadequate mortgage servicing.

The article notes the fact that the time to pursue some of these claims is running out. Under New York contract law, investors generally have six years from the time of a securitization to put back loans that violate representations and warranties.

Sparer Law Group continues to investigate the underwriting and mortgage servicing practices of the banks that created these mortgage pools. If you are an investor and have questions about them, please contact the firm at 415-217-7300 or info@sparerlaw.com.

About the firm:

Founded in 2003, Sparer Law Group built its reputation protecting investor rights and recovering investment losses for individuals and institutions through both individual and collective actions. The firm specializes in cases involving complex securities products including derivatives, restricted stock, hedge fund and private equity investments. In 2009, Sparer Law Group was appointed lead counsel in the consolidated securities class action against the Oppenheimer California Municipal Fund, which lost nearly $1 billion of net asset value in 2008.

Tuesday, June 22, 2010

FINRA Issues Investor Alert Regarding Reverse Convertibles

FINRA has issued a warning on its website to investors of Reverse Exchangeable Securities ("Reverse Convertibles").

Although often described as debt instruments, Reverse Convertibles are debt obligations of the issuer that are tied to the performance of an unrelated security or basket of securities. The Alert describes Reverse Convertibles as far more complex than a traditional bond and involve elements of options trading. In addition, Reverse Convertibles expose investors not only to risks traditionally associated with bonds and other fixed income products—such as the risk of issuer default and inflation risk—but also to the additional risks of the unrelated assets, which are often stocks.

FINRA issued the alert to inform investors of the features and risks of reverse convertibles that can be difficult for individual investors and investment professionals alike to evaluate. According to FINRA, if investors are considering purchasing Reverse Convertibles, it is critical that they look beyond the high coupon rate and focus on the risks of the underlying asset. FINRA warns ivnestors that even if the issuer of the reverse convertible is able to meet its obligations on the note—and even if the yield keeps pace with or surpasses inflation—investors could wind up, when the note matures, with shares of a depreciated—or even worthless—asset. Click here for the Full Investor Alert.

If you have suffered losses in Reverse Convertibles and would like more information, or would like to consult with an attorney on a confidential basis, contact SLG at 415-217-7300 or fill out our contact form.

Wednesday, June 16, 2010

SEC proposes new disclosures for target-date funds

On Wednesday June 16, 2010, Federal regulators proposed new disclosure rules for target-date retirement funds that would require sponsors to spell out how they are investing the money and to warn about risks.
Click here for entire article.

Under the SEC proposal, target-date funds' marketing materials would have to include a prominent table, chart or graph showing the allocations among the various assets over the life of the fund. A statement would have to explain that the asset allocation changes over time, and tell prospective investors that they should consider their financial situation and tolerance for risk before going into a fund.

Target-date funds came under criticism during the market meltdown of 2008 and in its aftermath. Among 31 funds with a 2010 target date, the average loss in 2008 was nearly 25 percent.

Before the vote on the proposed rules, SEC Chairman Mary Schapiro stated: "It's clear that investors need more information than just the date in a fund's name."

Thursday, January 14, 2010

Target Date Funds Can Be "Way Off Target"

Tom Brakke, CFA, offers new criticism today on Morningstar of Target-Date Mutual Funds, despite this investment vehicle's reputation as one of the hottest investment products of the last decade.

According to Brakke, many target date funds were structured based upon questionable assumptions about asset classes and how they perform over time. "Historical returns, the variability of those returns, and the correlations among the returns of different types of assets were used in asset allocation models as if they were facts of nature." Brakke says many target date funds with a reference date of 2010 have received much attention, "since many who held the funds on the verge of retirement saw large losses in their account balances during 2008 (with some drops exceeding 30%)." Click here for the entire article. (Subscription may be required).

In Brakke's opinion the main flaw is that deciding that someone should have X% in equities and other risky assets without regard to the valuation of those assets ignores an important relationship: The probability that stocks will perform worse than their historical average return increases as valuations rise.