On Monday, bondholders of over 25% of the voting rights in more than $47 billion of Countrywide Financiall-issued RMBS sent a notice of non-performance to Countrywide Home Loan identifying specific covenants in 115 pooling and servicing agreements (PSAs) that the holders allege countrywide servicing has failed to perform.

In the notice, the bondholders allege that each of these failures have materially affected the rights of the certificate holders under the relevant PSAs.

Under Section 7.01 of the PSAs, if any of the cited failures "continues unremedied for a period of 60 days after the date on which written notice of such failure has been given ... to the master servicer and the trustee by the holders of certificates evidencing not less than 25% of the voting rights evidenced by the certificates," that will be considered a failure that would constitute an event of default under the PSAs.

In a previous release, the bondholders emphasized their intent to invoke all contractual remedies available to them to recover their losses and to protect their rights. Kathy Patrick from Gibbs & Bruns, who is  lead counsel for the investors, emphasized that the holders' notice does not seek to halt loan modifications for troubled borrowers.

Instead, it urges the trustee — Bank Of New York — to enforce Countrywide's obligations to service loans prudently by maintaining accurate loan records, demanding the repurchase of loans that were originated in violation of underwriting guidelines, and compelling the sellers of ineligible or predatory mortgages to bear the costs of modifying them for homeowners or repurchasing them from the trusts' collateral pools.

Patrick also noted that the group of holders that tendered the notice of non-performance is larger, and encompasses more Countrywide-issued RMBS deals, than were included in the Aug. 20 instruction letter.

"Ours is a large, determined, and cohesive group of bondholders," Patrick replied said when asked why the group of holders was larger. "We have a clearly defined strategy. We plan to vigorously pursue this initiative to enforce Holders' rights."

A securitization market investor said that it is unclear what the statute of limitation is on reps and warranties.  He added that it's likely that in many of these case the statute of limitation is going to present a problem for investors.

"The securitization market isn't really pricing in this potential problem with buybacks because it's a real unknown," he said. "How do you value what the cost? It's a problem that will likely impact the market much down the road."

The investor said that for now it is probably that banks will increasingly look to cut back credit for marginal borrowers to avoid any future potential problems in future deals. This means a further restriction on the housing market.

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