IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
NATIONAL CREDIT UNION
ADMINISTRATION BOARD, as
Liquidating Agent of U.S. Central Federal
Credit Union Western Corporate Federal
Credit Union, Members United Corporate
Federal Credit Union, and Southwest
Corporate Federal Credit Union,
v.
J.P. MORGAN SECURITIES LLC., J.P.
MORGAN ACCEPTANCE
CORPORATION I, AMERICAN HOME
MORTGAGE ASSETS LLC, INDYMAC
MBS, INC., and BOND
SECURITIZATION, LLC,
—By the American Bankers Association, Corporate Trust Committee
Executive Summary
In this position paper, the Corporate Trust Committee is responding to current assertions that the obligations of trustees in asset-backed securities1 (?ABS?) are greater than the duties contractually undertaken by those trustees.
These assertions, which have been made by participants in the ABS market by investors, investment advisors, rating agencies and others2, fail to recognize the legal limitations on the duties of ABS trustees and have been made in response to both disappointing ABS investment performance and market issues arising from the current economic crisis. Although ABS investment performance has been disappointing, particularly with respect to certain residential mortgage-backed securities, and there were numerous market issues which gave rise to the current crisis, it is the position of the Committee that the contractual role of the trustee was not a contributing factor to either the investment performance or the market issues which may have caused or affected it.3 Moreover, in many instances, ambiguities or errors in the transaction documents governing impaired asset-backed securities have been construed in ways that were not contemplated or bargained for by the original transaction parties and that seek to alter the role and potential liability of trustees to a degree not warranted either by the contractual language or applicable statutory and common law. As a basic principle, the Committee acknowledges the need for more clarity in transaction documents generally going forward. However, the Committee’s position is that any issues that were neither contemplated by nor addressed in the documents governing current ABS transactions must be resolved in accordance with the legal contracts governing those transactions and generally accepted rules of contractual interpretation. Reliance on clear hindsight, even with the goal of protecting particular constituencies or investors generally, to impose duties retroactively on trustees that are clearly outside the range of duties undertaken in their contracts effectively abrogates those contracts and violates basic tenets of U.S. contract law.
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