New York Appellate Court Upholds Treatment of HAMP Deferred Principal in RMBS Trusts
A New York appellate court has affirmed the trial decision that payments from homeowners who repaid deferred principal under the Home Affordable Modification Program (HAMP) should be treated as 'Subsequent Recoveries' for junior bondholders in residential mortgage-backed securities (RMBS) trusts. The ruling, issued by the Appellate Division of the New York Supreme Court’s First Department on September 17, 2026, supports a July 2025 decision from Justice Andrew Borrok that clarified how such payments should be accounted for in trust agreements. The case involved junior bondholders represented by law firm McKool Smith and opposed RMBS market leaders including PIMCO and HBK Capital. The dispute centered on whether deferred principal repayments, which were not explicitly addressed in the original trust agreements, could be used to restore subordinate certificate balances. The court found that consistent practice—evidenced through monthly remittance reports—and lack of investor objections supported this interpretation. This decision resolves a long-standing uncertainty for RMBS market participants and provides clarity on how HAMP-related repayments should be treated in future trust accounting, potentially affecting hundreds of millions in principal recoveries.
Topics: HAMP mortgage-backed securities RMBS trustee proceedings