NCUA Sues Credit Suisse Over MBS Sold to Credit Unions

Federal regulators are targeting another financial firm in connection with its mortgage activities before the housing crisis.

The National Credit Union Administration sued Credit Suisse Group (CS) on Thursday, charging the Zurich-based company with misleading three corporate credit unions about the riskiness of mortgages that backed securities Credit Suisse bundled and sold to them. The three credit unions, which failed in 2010, sustained heavy losses from the transactions, the lawsuit says.

Separately, the U.S. Justice Department and the New York attorney general are probing the company’s handling of mortgage-backed securities, Reuters reported Thursday.

Read on.

NY judge dismisses MBS class action lawsuit against Freddie Mac

Freddie Mac announced the dismissal of a class action alleging securities fraud.

The lawsuit was filed against the company in federal court in August 2008.

Judge John Keenan of the U.S. District Court for the Southern District of New York ruled that Freddie disclosures on the securities, sold in 2007 and 2008, were not false or misleading.

Judge Keenan also denied plaintiff motion to file a Third Amended Complaint. The plaintiffs were primarily the National Elevator Industry Pension Plan, and others.

“Freddie Mac’s broad disclosure of all of its loan characteristics was an accurate way to relay information to investors, given the confusion surrounding the term ‘subprime,’” which “made it possible for a reasonable investor to, with little effort, take his own measure of risk in Freddie Mac’s loan portfolio,” said Keenan in his ruling.

Read on.

Judge Rakoff delivers enormous gift to MBS bond insurers, noteholders

U.S. Senior District Judge Jed Rakoff of Manhattan made Assured Guaranty wait a long time for the opinion explaining his ruling back in February that denied the MBS issuer Flagstar summary judgment on its interpretation of what constitutes a breach of the representations and warranties on mortgages underlying the securities Assured insured. But for Assured and its counsel at Susman Godfrey, the 24-page opinionRakoff finally issued Tuesday was worth the wait, and then some. Rakoff not only offered a simple definition of a material adverse effect that should help everyone with MBS put-back claims but also wiped out several other potential Flagstar defenses to Assured’s claims. With a bench trial in the case only a couple of weeks away, Flagstar has to be wondering if it’s time to talk settlement.

Rakoff is the third judge to offer an analysis of loss causation in the context of a bond insurer’s put-back case — and the third to reject MBS issuers’ arguments that they’re only liable for repurchasing deficient underlying mortgages when the breaches caused the loans to default. Like his Manhattan federal court colleague Paul Crotty, who granted summary judgment to the bond insurer Syncora in its case against EMC in June, Rakoff said that Assured must only show that the breaches in representations and warranties materially increased the risk that the insurer would suffer losses. (New York State Supreme Court Justice Eileen Branstenreached the same destination via a different route in January in MBIA’s put-back case against Countrywide.) “Put another way,” Rakoff wrote, “the causation that must here be shown is that the alleged breaches caused plaintiff to incur an increased risk of loss.”

Read on.

BofA Seeks to Dismiss FHFA Suit Over Mortgage-Backed Securities

Bank of America Corp.’s Countrywide Financial unit is asking a judge to throw out claims for “billions of dollars” in damages by the Federal Housing Finance Agency for mortgage-backed securities bought by Freddie Mac and Fannie Mae.

The agency’s federal and state securities law claims are time-barred, lawyers for Countrywide said in a Sept. 7 filing in support of their request to have the claims thrown out. U.S. District Judge Mariana Pfaelzer in Los Angeles is considering the request at a hearing today.

Read on.

First big victim of 2nd Circuit’s MBS standing opinion: JPMorgan

Thomson Reuters News & Insight.

Earlier this month, when the 2nd Circuit Court of Appeals issued a ruling in a Goldman Sachs case thatredefined standing inclass actions involving mortgage-backed securities, I questioned how much impact the opinion would have, given that we’re four years into MBS class litigation. Sure, the 2nd Circuit opened the door to much broader MBS classes when it held that name plaintiffs can pursue claims on behalf of all the trusts backed by mortgages originated by the same lenders as those they invested in. But I wondered, as a practical matter, whether the ruling was too late to help most MBS class claimants, since most of their cases have long since crossed the threshold of standing.

Now we know that for at least one defendant — JPMorgan Chase — the newly widened definition of standing came all too soon. On Friday, U.S. Senior District Judge Edward Korman of Brooklyn issued an order drastically expanding the claims for which the name plaintiff in an MBS case against JPMorgan, the Mississippi Public Employees’ Retirement System (MissPERS), has standing to sue.

Wall Street banks get Fannie Mae MBS case against them dismissed

Major Wall Street banks that served as underwriters when Fannie Mae sold its stock, managed to get a major case that shareholders filed against them dismissed, according to Reuters.

The banks were initially accused of not being forthright about risky home loans linked to Fannie Mae.

In one of the individual actions, Comprehensive Investment Services (CIS) sued banks that handled the underwriting of CIS’s acquisition of $600,000 shares of Fannie Mae’s Series T Preferred Stock from Wachovia Securities for $15 million. Underwriters to the transaction included Wachovia Capital Markets and Citigroup Global Markets.

The allegations center around the shareholders’ belief that underwriters made material misstatements about Fannie Mae’s subprime and Alt-A exposures, risk management controls and core capital financials. United States District Judge Paul Crotty in Manhattan dismissed the cases filed against underwriters this week. Click here to read more.

Citigroup to settle MBS suit for $24.9 million

(Reuters) – Citigroup Inc has agreed to pay nearly $25 million to settle a lawsuit by investors who said they were misled about the quality of mortgage-backed securities they bought just before the U.S. housing market crashed, according to court papers filed Monday in federal court.

The 2008 lawsuit accused Citigroup of lying about lenders’ deteriorating mortgage underwriting and appraisal standards during the subprime mortgage boom, and understating the risk of default. As the underlying mortgages began to default, the value of the investments plummeted, the lawsuit alleged.

The Ann Arbor Employees’ Retirement System and Greater Kansas City Laborers Pension Fund had led the lawsuit on behalf of investors who purchased certificates in one of two mortgage-backed securities trusts from Citigroup Mortgage Loan Trust Inc in 2007.

Read on.

Are megabucks MBS breach-of-contract settlements in the offing?

Thomson Reuters News & Insight.

On Tuesday, in a little-noticed filing, Bank of New York Mellon sued WMC Mortgage and GE Mortgage Holding in federal court in Manhattan. BNY Mellon oversees a $680 million trust whose notes are securitized by WMC and GE Mortgage loans. Its new complaint explains that BNY Mellon, as the mortgage-backed securities trustee, is suing at the direction of a certificate holder for breaches of representations and warranties about those underlying mortgages. I left a message with BNY Mellon counsel at Boies, Schiller & Flexner, asking about the identity of the certificate holder, but didn’t hear back. Nevertheless, the filing is the latest indication that MBS trustees are very slowly beginning to bring breach of contract, or put-back, claims on behalf of MBS investors.

As my Reuters colleague Rick Rothaker reported earlier this month (and as I predicted last year), banks that issued mortgage-backed securities are facing mounting put-back claims, not just by the government-sponsored mortgage guarantors Fannie Mae and Freddie Mac but also by private MBS investors. By contract, those investors have to jump through a series of procedural hoops to assert claims of breach of reps and warranties: They must amass 25 percent of the voting rights within the trust, demand an investigation of potential breaches by the MBS trustee, and then, if the trustee does not act to their satisfaction, wait a specified amount of time — typically, between 60 and 120 days — before filing suit on their own. The burst of trustee complaints we’ve seen in the last few months indicates that some MBS trustees are beginning to take seriously their duty to act at the direction of certificate holders.

View this document on Scribd

Hot new filing claims internal docs show rating agencies lied on MBS

Thomson Reuters News & Insight.

If you’re reasonably literate about the financial crisis, you probably know that the credit rating agencies have slipped through the carnage like a cat walking away from a knocked-over vase. With their opinions on publicly offered mortgage-backed securities protected by the First Amendment, Standard & Poor’s and Moody’s have won dismissals of the vast majority of MBS investor claims against them in state and federal court, despitepowerful evidence from congressional investigations that they worked with underwriters to confer investment-grade ratings on securities backed by dreck. With one possible exception, the only surviving cases against rating agencies involve claims by investors in private placements, who have successfully argued that private ratings aren’t protected free speech.

The near-spotless litigation record of the rating agencies means we’ve seen very little internal evidence, in the form of emails between rating execs, emails between the agencies and underwriters and deposition testimony from credit rating agency insiders. The only hard evidence on the agency’s role in the economy’s collapse came from a Senate report.

Until Monday.

Abigail C. Field: MBS and foreclosures expose our degraded legal profession

We lawyers shrug off the ubiquitous jokes because once wronged, people want us. But in the socially crucial contexts of mortgages, foreclosures and securities, lawyers have become a new kind of joke, one that should shame us all.

Failed Securities Counsel

By now many are realizing that the bankers lied materially and often about the mortgage loans they packaged into securities and sold to suckers like pension funds and Fannie & Freddie. But stop and think about that–where were the lawyers?

Underwriters’ counsel and issuers’ counsel should never have let those deals go through. Heck, in-house counsel shouldn’t have signed off. And yet the deals were done.

The securities-related lawyering failures didn’t stop once the securities were created and sold. They also involve how the securities are managed-”serviced”- in an ongoing way. As Michael Olenick exposes here, servicer misconduct (including servicers’ foreclosure counsels’ misconduct), has made things much worse. Indeed, catastrophic costs will soon be realized. If the legal profession in this area were still a profession, Olenick’s case study shouldn’t be possible.

Read on.