McKool Smith Achieves Groundbreaking Win for Junior Bondholders in RMBS Case
Landmark Victory by McKool Smith for Junior Bondholders
On July 23, 2025, McKool Smith, a leading trial law firm, celebrated a decisive courtroom victory that has far-reaching implications for the residential mortgage-backed securities (RMBS) sector. This triumph was achieved on behalf of junior bondholders including renowned investors such as 400 Capital Management, La Verdad Holdings, and Solula LLC, amidst a contentious litigation involving 34 RMBS trusts.
Background of the Case
This legal battle emerged in the wake of the financial crisis when bondholders associated with these 34 trusts faced approximately $400 million in losses stemming from principal forbearance granted to struggling homeowners. These modifications were part of federal initiatives like the Home Affordable Modification Program (HAMP). However, the governing contracts of many RMBS trusts predated such modification programs and lacked clarity regarding the accounting of forborne principal on these adjusted loans.
As homeowners began to repay those losses in the years following the crisis, challenges arose regarding how these recoveries should be recorded. Wells Fargo, serving as the RMBS trustee, categorized these repayments as
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