MBS investors suffered a serious legal blow a couple of months back when the Second Circuit held that the Trust Indenture Act of 1939 doesn’t apply to MBS.
The Second Circuit’s decision hinges on treating a “mortgage” as a “security.” That’s rather counterintuitive. The Trust Indenture Act doesn’t define “security,” but refers to the Securities Act’s definitions. The Securities Act defines “security” to include “any note” but the definition bears the caveat “unless the context otherwise requires.” I’d think that the context would have pretty easily counseled for reading “note” not to include residential mortgages. What the Securities Act is trying to pick up are issuances of corporate notes.
Read nore -> A 21st Century Trust Indenture Act? – Credit Slips.