Nomura, RBS agree to pay $839M over mortgage bonds

Nomura Holdings (NMR) and The Royal Bank of Scotland(RBS) have agreed to a settlement in federal court to pay $839 million over the sale of mortgage-backed securities.

Both banks were found guilty in May by U.S. District Judge Denise Cote in Manhattan after a non-jury trial and were directed to pay $806 million including $26.6 million toFannie Mae and $779.4 million to Freddie Mac.

“The offering documents did not correctly describe the mortgage loans,” the judge said in his lengthy, 361-page decision. “The magnitude of falsity, conservatively measured, is enormous.”

Nomura and RBS denied the FHFA’s allegations at the time of the verdict.

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Judge dumps MBS class action against Goldman Sachs

U.S. District Judge Victor Marrero dismissed a five-year class action lawsuit against Goldman Sachs (GS) over the sale of highly leveraged, subprime mortgage bonds that hedge fund Dodona I LLC said Goldman planned to bet against.

The federal judge granted summary judgment to Goldman, saying the hedge fund had not shown evidence Goldman could have known the bonds would fail.

The lawsuit, filed in September 2010, was filed against Goldman on behalf of investors in a $2 billion offering of two collateralized debt obligations, Hudson 1 and Hudson 2.

The hedge fund claimed that Goldman Sachs “recklessly or intentionally” sold the Hudson Mezzanine Funding CDOs to offload subprime risk on unsuspecting investors.

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The U.S. foreclosure crisis was not just a subprime event

While I agree that the foreclosure crisis was not caused by subprime event, the article leaves out  that The Financial Crisis Inquiry Commission’s report (you can get it online) on the housing meltdown found most of the blame with risky lending practices by the banks, inflated home values by appraisers, and banks making money from originated fees by bundling and selling off a lot of the risk as MBS mixed with good and bad loans and getting the blessing of an A+ rating by the credit rating agencies.

Each month, the NBER Digest summarizes several recent NBER working papers. These papers have not been peer-reviewed, but are circulated by their authors for comment and discussion. With the NBER’s blessing, Making Sen$e is pleased to begin featuring these summaries regularly on our page.

The following summary was written by the NBER and doesn’t necessarily reflect the views of Making Sen$e. We will tell you, however, what the takeway is: The U.S. foreclosure crisis, so commonly referred to subprime mortgage crisis, was not in fact, just a subprime event. While it began that way, it became a much broader phenomenon and mainly included prime mortgages. The findings suggest that effective regulation cannot just focus on restricting risky subprime contracts.

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Robbins Geller Rudman & Dowd Obtains $388 Million Recovery in J.P. Morgan MBS Class Action

SAN DIEGO, Jul 17, 2015 (BUSINESS WIRE) — Robbins Geller Rudman & Dowd LLP announced a $388 million recovery on behalf of a class of investors in nine 2007 residential mortgage-backed securities (MBS) offerings issued by J.P. Morgan – bringing to a successful conclusion one of the last remaining MBS purchaser class actions arising out of the global financial crisis. The settlement represents, on a percentage basis, the largest recovery ever achieved in an MBS purchaser class action.

“We’re pleased with the record-setting recovery for our participants and the class,” stated Ed Smith, Fund Manager for lead plaintiff Laborers Pension Trust Fund for Northern California. “Our lawyers at Robbins Geller were tireless in their efforts, and the result is a significant victory for the class.”

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Goldman, Morgan Stanley Near Settlements With Justice Department

The Street:

Goldman Sachs (GS) is one of up to nine banks reportedly expected to pay billions of dollars in settlements with the U.S. Department of Justice over the sale of mortgage-backed securities leading up to the financial crisis. Goldman Sachs and Morgan Stanley (MS) could finalize their settlements within the next couple of weeks, as early as late June, according to the Wall Street Journal, which cited people familiar with the matter. Other banks including Barclays (BCS), Credit Suisse (CS), Deutsche Bank (DB), HSBC (HSBC), Royal Bank of Scotland (RBS), UBS (UBS) and Wells Fargo (WFC) are expected to reach settlements in the coming months as well. The total amounts each bank will pay will reportedly be determined by its size and level of alleged misconduct on an individual basis. Overall, the banks could pay anywhere from several hundred million dollars to as much as $2 billion to $3 billion apiece. Once these settlements are finalized, the Justice Department may shift its focus to pursuing settlements with large U.S. regional banks tied to mortgage-backed securities they underwrote and sold, the Journal reported. The Justice Department has already reached settlements with J.P. Morgan Chase (JPM), Citigroup (C) and, most recently, Bank of America (BAC) for their roles in selling poor-quality mortgages before the crisis, totaling nearly $37 billion. Bank of America reached a settlement with the Department of Justice in August 2014 for $16.65 billion. That case marked the largest civil settlement with a single entity in American history, according to the Justice Department. The settlements have been reached in part because of the efforts of President Obama’s Financial Fraud Enforcement Task Force and its Residential Mortgage-Backed Securities (RMBS) Working Group.

JPMorgan To Pay $500M In Landmark MBS Class Settlement

Law360, New York (May 28, 2015, 1:36 PM ET) — A New York federal judge signed off Wednesday on what is said to be the largest ever class action settlement revolving around the sale of mortgage backed securities, with JPMorgan Chase & Co. agreeing to plunk down $500 million to settle accusations arising from the sale of $17.58 billion in Bear Stearns Cos. securities.

U.S. District Judge Laura Taylor Swain agreed that the terms of the settlement were fair and also agreed to that class attorneys at Bernstein Litowitz Berger & Grossmann LLP and Cohen Milstein…

Source: Law360

Prudential Settles Lawsuits with Bank of America over Mortgage-Backed Securities

New Jersey federal court documents filed earlier this week revealed that Prudential Insurance Co.has moved to settle its ongoing lawsuits withBank of America NA, Merrill Lynch & Co. Inc.,First Franklin Financial Group, and a number of lenders in the mortgage industry.

According to Law360, the suits, which were first filed in March 2013, alleged Bank of America and others knowingly sold Prudential $2.1 billion in low-quality mortgage-backed securities—and made false statements about them. Prudential claimed this left the company with more than 10,000 defective home loans, many that eventually went into default or foreclosure.

The suits also claimed there were deficiencies in loan-to-value ratios, owner-occupation levels, and more, and that the credit ratings touted by the defendants were “garbage,” according to federal court documents.

Many of the claims made by Prudential were dismissed earlier this year, according to Reuters, when District Judge Stanley R. Chesler heard the case in February. Chesler determined that Prudential did not effectively prove that BofA or Merrill Lynch had lied to rating agencies about the quality of their loans, and he dismissed Prudential’s negligent misrepresentation claim.

Additionally, Chesler also said Prudential’s “after-the-fact” computer analysis of securities—a key piece of evidence for the plaintiff—was unreliable.

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HSBC sued by U.S. credit union group over mortgage-backed securities

The credit union group filed the suit in federal court in Alexandria, Virginia, in its role as liquidating agent for five failed corporate credit unions and on behalf of some NCUA guaranteed notes trusts. It is seeking damages to be determined at trial.

The NCUA said some $1.97 billion in residential mortgage-backed securities from the trusts were purchased by the U.S. Central, WesCorp, Members United, Southwest and Constitution credit unions between 2004 and 2007. The complaint said HSBC did not properly monitor loan servicers or take timely action on bad loans.

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S&P Receives A One-Year Suspension For MBS Ratings Misconduct

On January 21, 2015, the US Securities and Exchange Commission brought charges for the very first time against a major rating agency, sanctioning Standard & Poor’s Rating Services (S&P) for making misrepresentations and failing to maintain accurate records and controls concerning its rating of certain commercial and residential mortgage- backed securities (CMBS and RMBS). Those sanctions include a one-year ban from rating any new issue US conduit/fusion CMBS transactions and $77 million in payments to the SEC and to the New York State and Massachusetts attorneys general.

S&P’s Rating of Conduit/Fusion CMBS

Beginning in 2009, S&P issued new criteria for rating conduit/fusion CMBS transactions (i.e., CMBS transactions involving a pool of multiple loans that are diversified by both property type and geography). Specifically, S&P used the debt service coverage ratio (DSCR) — a property’s annual net operating income divided by the annual mortgage debt service — to estimate whether the underlying mortgage loans would default during their term. S&P then used that estimate to determine the amount of credit enhancement it would require to achieve each rating level.

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Allstate Settles Mortgage Suit Against Morgan Stanley

(Bloomberg) — Allstate Insurance Co. agreed to settle a 2011 lawsuit accusing Morgan Stanley of fraud over more than $100 million worth of mortgage-backed securities in which the insurer invested.

The largest publicly traded U.S. home and auto insurer sued Morgan Stanley and other lenders in 2011, alleging they sold packages of risky home loans while claiming they conformed with “conservative” underwriting standards.

Northbrook, Illinois-based Allstate and New York-based Morgan Stanley have agreed to discontinue the suit, according to a Feb. 2 court filing in New York State Supreme Court.

“The lawsuit has been settled on mutually agreeable terms,” Allstate spokeswoman Maryellen Thielen said in an e-mail.

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