Finally, in order to enforce their representations and warranties, investors may need to band together in groups representing 25 percent or more of the voting rights in order to make certain demands upon the securitization trustee. Investors may be dispersed and have difficulty coordinating their actions. The flaws in the representations and warranties provisions of the PSAs appear to be widely recognized.
For example, many key players in the securitization industry have worked through Project RESTART, an initiative of the American Securitization Forum (ASF), to create an industry standard for representations and warranties that covers prudent practices and is commonly understood by all market participants.5 The ASF has also published model principles for repurchasing mortgage loans that breach representation warranties to provide a standard industry PSA enforcement mechanism.6 I believe that these are useful developments and should promote greater consistency in governing contracts of mortgage securitizations in the future, thereby facilitating investor monitoring of underwriting standards and setting common expectations for resolution of breaches of representations and warranties when they occur.