Second Circuit Appeal May Alter the Regulatory Landscape for Hedge Funds and Other Investors in Residential Mortgage-Backed Securities

In an appeal highlighting conflicting federal district court decisions from the Southern District of New York, the United States Court of Appeals for the Second Circuit will have to determine whether the Trust Indenture Act of 1939 (TIA) – which commentator Thomas Hazen has called the “forgotten” securities statute – applies to the scores of securitization deals that are governed by pooling and servicing agreements.  If the panel finds that it does, then the opportunities and challenges for securitization trustees and investors may alter the structured finance landscape significantly.  If the Court of Appeals finds that it does not, then the status quo in the securitization market will be preserved, albeit with rather shaky analytical underpinnings.  In a guest article, Edmund M. O’Toole, a litigation partner with Venable LLP and head of the firm’s New York office, provides a brief background on the TIA, a summary of the conflicting district court opinions and the significant market and policy issues that are implicated in this appeal.

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