On May 11, 2012, Lehman Brothers Holdings filed a lawsuit in New York State court against GMAC Mortgage Corporation relating to the “improper servicing of at least 240 mortgage loans owned by Plaintiff.” According to Lehman’s summons with notice, GMAC “breached the terms of the servicing agreements and/or prudent servicing standards,” resulting in damages of $30 million. Lehman’s causes of action include breach of contract, breach of the implied duty of good faith and fair dealing, negligence, and unjust enrichment. The case is captioned Lehman Brothers Holdings Inc. v. GMAC Mortgage Corporation, 651653/2012, in the Supreme Court of New York, New York County. Read the summons with notice here.
Deutsche Bank, MortgageIT Settle With Department of Justice
Posted in Department of Justice, Deutsche Bank AG, Investment Banks/Deal Sponsors, Mortgage Originators, MortgageIT, Regulators/Government EntitiesOn May 10, 2012, the United States Department of Justice announced that it had settled its civil fraud lawsuit against Deutsche Bank and MortgageIT for $202.3 million. The United States Attorney’s Office for the Southern District of New York, Civil Division, filed the lawsuit in May 2011, alleging that Deutsche Bank’s MortgageIT unit violated the False Claims Act by falsifying information in order to qualify thousands of high-rish mortgages for a Department of Housing and Urban Development (HUD) insurance program. According to the government’s press release announcing the settlement, Deutsche Bank and MortgageIT admitted responsibility for certain conduct alleged in the complaint, including that MortgageIT did not conform to all applicable HUD regulations and that MortgageIT submitted certifications to HUD stating that certain loans were eligible for government mortgage insurance when in fact they were not. United States District Judge Lewis Kaplan approved the settlement. The case is captioned U.S. v. Deutsche Bank AG et al, U.S. District Court, Southern District of New York, No. 11-02976 (S.D.N.Y.). Read the settlement here. Read more about the lawsuit here.
Justice Kapnick Gives Investors Partial Access to Bank of America Settlement Communications
Posted in Bank of America, Bank of New York Mellon, Countrywide FinancialOn May 8, 2012, New York state judge Barbara R. Kapnick endorsed a proposal to allow investors who objected to Bank of America’s proposed $8.5 billion RMBS settlement to review some of the communications related to the settlement agreement, according to Reuters. The proposed settlement would resolve nearly all of Bank of America’s legacy Countrywide-issued first-lien RMBS exposure and involves 530 RMBS trusts with an original principal balance of $424 billion. The objecting investors argued that they could not properly evaluate the settlement without knowing more about the negotiations and who was involved. Under the proposal, objecting investors would be allowed to review settlement communications between Bank of America, the trustee Bank of New York Mellon, and the group of 22 institutional investors who negotiated the settlement, as well as direct communications between Bank of America and BNY Mellon. Investors would not, however, be allowed to review communications between the 22 institutional investors and Bank of America, where the trustee was not present. Read more about the Bank of America settlement here. The case is captioned In the matter of the application of the Bank of New York Mellon v. Walnut Place LLC, et al., case number 651786/2011, in the Supreme Court of the State of New York, County of New York.
Court Consolidates Two RMBS Actions Against Bank of America
Posted in Bank Hapoalim BM, Bank of America, Principal Life InsuranceOn May 7, 2012, U.S. District Judge Victor Marrero of the Southern District of New York consolidated two RMBS actions – one by Bank Hapoalim and one by Principal Life Insurance Company – against Bank of America. Both actions allege that Bank of America knowingly misrepresented the quality and underwriting standards of mortgage loans in order to promote the sale of more than $850 million in RMBS. Israel-based Bank Hapoalim filed its action in New York state court in February 2012, in connection with its purchase of $721 million in RMBS from Bank of America. Principal Life Insurance filed its action in New York state court in March 2012, in connection with its purchase of approximately $143 million in RMBS. Bank of America removed both cases to federal court in New York, and asked the U.S. Judicial Panel on Multidistrict Litigation to consolidate both cases with several cases the panel had centralized in California federal court. In ordering that the cases be consolidated, Judge Marrero found that the two suits involved the same facts and claims. Judge Marrero did not rule on whether the cases should be transferred to California for consolidation with the ongoing MDL there. The lead case is captioned Bank Hapoalim BM v. Bank of America Corp., et. al., case number 1:12-cv-03359, in the U.S. District Court for the Southern District of New York. Read the order here.
Syncora’s RMBS Case Against JPMorgan Survives Motion To Dismiss
Posted in Bear Stearns & Co., JP Morgan Chase, SyncoraOn May 4, 2012, New York state judge Charles E. Ramos denied JPMorgan’s motion to dismiss Syncora Guarantee’s lawsuit accusing Bear Stearns of making false and misleading statements connected with a residential mortgage-backed securities (RMBS) transaction. Syncora, a bond insurer, filed its complaint in June 2011 , alleging that Bear Stearns, which JPMorgan acquired, fraudulently induced Syncora into insuring a transaction of toxic RMBS, known as GreenPoint Mortgage Funding Trust 2007-1. JPMorgan moved both to dismiss and for summary judgment on res judicata grounds, arguing that a similar lawsuit, filed in federal court, precluded the state court action. In denying JPMorgan’s motion, Justice Ramos ruled that the state law claims against JPMorgan were not within the federal court’s jurisdiction. JPMorgan was not named in the federal action. The case is captioned Syncora Guarantee Inc. v. J.P. Morgan Securities LLC, case number 651566/2011, in the Supreme Court of the State of New York, County of New York. Read the decision here.
Court Threatens to Sanction Bank of America for Discovery Delays
Posted in Bank of America, Bond Insurers, Countrywide Financial, Investment Banks/Deal Sponsors, MBIA, Mortgage OriginatorsOn May 4, 2012, New York state judge Eileen Bransten threatened to sanction Bank of America’s attorneys for holding up discovery in a multibillion-dollar lawsuit over residential mortgage-backed securities (RMBS) that MBIA insured. Bank of America and MBIA have been engaged in contentious discovery regarding depositions and the production of documents. MBIA complained that Bank of America was delaying the production of documents by clawing back – in the middle of a deposition – long-disclosed documents, by using the bank examiner’s privilege too liberally, and by asserting privilege over documents for months only to withdraw such assertions later. Justice Bransten is quoted as saying, at a hearing on May 4, “we’ve really got to step up to the plate, take a big, deep breath, and grow up a bit.” Justice Bransten further indicated she is “closer and closer” to using sanctions and monetary penalties to remedy discovery delays. The case is captioned MBIA Insurance Corp. v. Countrywide Home Loans Inc., et al., case number 602825/2008, in the Supreme Court of the State of New York, New York County.
UBS Loses Motion to Dismiss FHFA Lawsuit
Posted in Federal Housing Finance Agency, Investment Banks/Deal Sponsors, Regulators/Government Entities, UBSOn May 4, 2012, a federal court denied UBS’s motion to dismiss the Federal Housing Finance Agency’s (FHFA’s) lawsuit accusing UBS of misrepresenting the quality of residential mortgage-backed securities (RMBS) that UBS sold to Fannie Mae and Freddie Mac. FHFA, the conservator for Fannie and Freddie, sued UBS and certain of its officers in July 2011, alleging that defendants violated federal securities law by misrepresenting the quality and underwriting standards of loans underlying $4.5 billion in RMBS that UBS offered and sold to Fannie and Freddie between 2005 and 2007. The FHFA filed 17 similar actions in September 2011 against the nation’s largest financial institutions, numerous individual officers, and various lead underwriters. UBS moved to dismiss the complaint as time-barred under the 2008 Housing and Economic Recovery Act and for pleading deficiencies. U.S. District Judge Denise Cote found that the complaint was timely and its pleadings sufficient. According to the court, UBS’s interpretation of the statute of limitations “would undermine the congressional purpose of a statute whose overriding objective was to maximize the ability of FHFA to put [Fannie and Freddie] in a sound and solvent condition.” In rejecting UBS’s contention that faulty third-party appraisals were insufficient to hold UBS accountable, the court ruled that UBS could not avoid liability for inaccuracies that made their way into the offering materials. The court did dismiss FHFA’s negligent misrepresentation claim, highlighting the sophistication of the government-sponsored entities. The case is captioned Federal Housing Finance Agency, et al. v. UBS Americas Inc., et al., case number 1:11-cv-5201, in the U.S. District Court for the Southern District of New York. Read the decision here.
JPMorgan Shareholders File Derivative Action Against Dimon, Other Directors For RMBS Sales to Fannie, Freddie
Posted in Institutional Investors, Investment Banks/Deal Sponsors, JP Morgan Chase, Kentucky State District Council of Carpenters Pension Trust FundOn May 3, 2012, shareholders of JPMorgan Chase filed a derivative lawsuit against 18 current and former directors of JPMorgan, alleging that the directors exposed the bank to hundreds of millions of dollars in liability by selling toxic residential mortgage-backed securities (RMBS) to Fannie Mae and Freddie Mac. The lawsuit, filed by the Kentucky State District Council of Carpenters Pension Trust Fund, alleges that the defendants – which include Jamie Dimon, the bank’s chairman, president and CEO – knowingly or recklessly allowed JPMorgan to engage in deceptive and manipulative business practices by selling RMBS certificates to government-sponsored enterprises under false and misleading registration statements. In addition, board members allegedly failed to investigate the quality of the loans that JPMorgan securitized and sold to Fannie and Freddie, and failed to disclose accurate material information to investors. Plaintiffs allege that, as a result of the defendants’ failures and misrepresentations, JPMorgan now faces a number of government investigations and civil lawsuits, including the FHFA’s lawsuit filed in September 2011. The complaint further alleges that the board has failed to file lawsuits against the originators and other parties responsible for certain aspects of the loan and securitization process. The case is captioned Kentucky State District Council of Carpenters Pension Trust Fund v. James Dimon, et al. in the Supreme Court of the State of New York, County of New York. The case number is 651476/2012. Read the complaint here.
Court Dismisses Most of CIFG’s RMBS Claims Against Goldman Sachs
Posted in Bond Insurers, CIFG Assurance North America Inc., Goldman Sachs, Investment Banks/Deal SponsorsOn May 3, 2012, a New York state judge dismissed most of CIFG Assurance’s (CIFG’s) claims against Goldman Sachs, leaving the bond insurer with only a breach of contract claim in its lawsuit against the investment bank. CIFG sued Goldman in August 2011, accusing the investment bank of fraudulently inducing CIFG to insure approximately $275 million in residential mortgage-backed securities (RMBS) by misrepresenting the underwriting standards and quality of the loans underlying the RMBS. In dismissing CIFG’s fraudulent inducement claims, the court found that CIFG was a sophisticated party that should have done more due diligence before insuring the bonds. The case is captioned CIFG Assurance North America Inc. v. Goldman Sachs & Co., et. al., case number 2011-652286, in the Supreme Court of the State of New York, County of New York. Read the order here.
Citigroup Wins Summary Judgment on Majority of Claims in MBS Suit
Posted in Citigroup, Impac Funding Corp ., Institutional Investors, Investment Banks/Deal SponsorsOn May 2, 2012, a California federal judge granted Citigroup’s motion for summary judgment with respect to all but one claim in Citi’s $7.3 million lawsuit against Impac Funding Corp. Citigroup, which purchased $7.3 million worth of certificates in a trust on March 12, 2010, alleged that Impac misled investors with a pooling and servicing agreement (PSA) that inaccurately described the priority in which distributions would be made. Six weeks after Citigroup made its purchase, Impac filed a statement with the SEC saying that the PSA’s distribution terms were incorrect. Citigroup alleged that it lost millions of dollars due to Impac’s false and misleading statements. In granting Citigroup the majority of its summary judgment motion, U.S. District Judge Mariana R. Pfaelzer rejected Impac’s argument that a discrepancy between the PSA and a corresponding summary prospectus supplement should have raised a red flag. The court denied Citigroup’s motion for summary judgment on its claim of negligent misrepresentation. The case is captioned Citigroup Global Markets Inc. v. Impac Secured Assets Corp., et al., case number 2:11-cv-04514, in the U.S. District Court for the Central District of California. Read the partial summary judgment motion here.