New York Court Settles RMBS Dispute Over HAMP Deferred Principal

The First Department’s decision upholds a July 2025 ruling by Justice Andrew Borrok, effectively ending a high-stakes legal battle against institutional market leaders including PIMCO, HBK Capital, and Axonic Capital. At the heart of the case was the accounting of mortgage principal that servicers deferred under the U.S. Treasury’s Home Affordable Modification Program. Because the original trust agreements predate the program, the contracts remained silent on how to classify these payments once borrowers repaid the deferred amounts.

While the court acknowledged these payments do not perfectly align with the strict contractual definition of 'Subsequent Recoveries,' it pointed to the trustee’s long-standing performance history. Wells Fargo had consistently treated these repayments as recoveries in its monthly remittance reports without investor objection. According to McKool Smith Principal Courtney Statfeld, the ruling provides a definitive answer for trustees and investors regarding the treatment of these funds. The firm’s legal team, led by Statfeld and Robert Scheef, successfully argued that the structure of the agreements necessitated this interpretation, a position that caps a multi-year effort to resolve the HAMP principal accounting issue across various jurisdictions.