Moody's Investors Service analysts said they don't believe Countrywide, now part of Bank of America Corp., routinely failed to transfer mortgage notes to trusts when the lender securitized loans.

In a Dec. 9 report David Fanger, a Moody's senior vice president, and Yehudah Forster, a vice president and senior analyst, weighed in on the Kemp v. Countrywide bankruptcy case, which caused a small uproar last month when it emerged that a Countrywide employee and its lawyer both said in court that the company routinely held on to promissory notes. (B of A took over Countrywide in 2008.)

"Based on the documents we've seen, we don't believe Countrywide as a matter of standard practice failed to deliver and endorse the mortgage notes to the trustee," the analysts wrote.

On Nov. 17, Judge Judith Wizmur of the U.S. Bankruptcy Court in New Jersey dismissed BofA's claim that it had the right to enforce a mortgage debt against the borrower. She also wrote a lengthy commentary about the company's handling of the case.

BofA later disowned the testimony of its employee, saying the litigation manager was unfamiliar with its document practices and that its own attorney had bungled the case.

The Moody's analysts said the case is unlikely to set a precedent but likely will increase servicing and litigation costs for BofA.

"The Kemp case reveals that the servicer's employees and lawyers may be unaware of the complexity and requirements of the securitization process," the analysts wrote.

Servicers also may be delayed from foreclosing on borrowers if they are unable to show proof of their own claims, the analysts said.

"While we don't believe the documentation and transfer process was defective as a matter of standard practice, we still don't know the extent to which individual loans may be defective," the analysts wrote. "The extent to which sponsors failed to adhere to the requirements in the transaction documents is unclear."

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