Court affirms Wells Fargo’s HAMP payment treatment across 34 RMBS trusts
Here is the backstory. When the US Treasury launched Home Affordable Modification Program (HAMP) in 2009, servicers modified underwater loans by deferring portions of borrowers’ principal until maturity or payoff. Interest on deferred amounts stopped accruing. Servicers reported the deferred principal as realized losses, and Wells Fargo wrote down certificate balances – hundreds of millions of dollars, hitting subordinate certificates first. In many cases, write-downs zeroed out balances entirely.
Then the market recovered. Borrowers started repaying deferred amounts, and Wells Fargo faced a new question: how to allocate those payments.
The trustee argued the payments were Subsequent Recoveries, triggering write-ups to restore subordinate certificate balances. Senior certificateholders – including funds managed by Deer Park Road Management Company, Axonic Capital, and Pacific Investment Management Company – argued the payments should flow through the trusts’ general waterfall instead.
The dispute reached court in 2021. On a prior appeal, the First Department found the Pooling and Servicing Agreements (PSAs) ambiguous and sent the case back. After a 17-day bench trial in 2025, Supreme Court Justice sided with the trustee.
The appellate court agreed, acknowledging the payments do not fit neatly within the contractual definition under most PSAs – only two of 34 trusts explicitly covered modified loans. But two factors proved decisive.
