Month: February 2012

Deutsche Bank Sued For RMBS Losses in New York State Court

On February 14, 2012, Phoenix Light and seven other plaintiffs sued Deutsche Bank, Ace Securities, and related entities in New York state court for $300 million in damages resulting from the purchase of allegedly overvalued RMBS. In their summons with notice, Plaintiffs allege that the offering materials for the RMBS contained material misrepresentations and omissions regarding the underwriting standards and quality of the loans underlying the RMBS. Plaintiffs allege claims for common-law fraud, fraudulent inducement, negligent misrepresentation, and aiding and abetting fraud. Summons.

Syncora Sues JP Morgan For Losses From Insuring RMBS

On February 14, 2012, Syncora Guarantee filed a complaint in New York state court against JP Morgan, Bear Stearns, and EMC Mortgage alleging $52 million in losses incurred by the insurance company as a result of its insuring RMBS issued by the defendants. Syncora alleges that the defendants misrepresented not only the quality of the home-equity line of credit residential mortgages underlying the RMBS, but also the quality of their due diligence processes during the securitization. Syncora brings claims for breach of contract and common-law fraudulent inducement. Complaint.

Rating Agency Developments – Week of February 13, 2012

On February 7, DBRS released its methodology for CLOs and CDOs of large corporate credit. DBRS Methodology.

On February 7, DBRS released its Canadian surveillance methodology for CDOs of large corporate credit. DBRS Methodology.

On February 7, DBRS released its cash flow assumptions for corporate credit securitizations. DBRS Methodology.

On February 6, DBRS released its swap criteria for European structured finance transactions. DBRS Methodology.

On February 6, DBRS released its operational risk assessments for European ABS and SME CLO servicers. DBRS Methodology.

On February 6, DBRS released its operational risk assessments for European RMBS servicers. DBRS Methodology.

On February 6, DBRS released its master European structured finance surveillance methodology. DBRS Methodology.

On February 6, DBRS released its legal criteria for European structured finance transactions. DBRS Methodology.

Fed Agreement in Principle with Banking Organizations Regarding Monetary Sanctions

On February 9, the Fed announced its agreement in principle with five banks on $766.5 million in monetary sanctions against the banks for unsafe and unsound processes and practices in residential mortgage loan servicing and foreclosure processing. The sanctions are issued in conjunction with, and included in, the settlement agreement among the banks, state attorneys general, and the Department of Justice, also dated February 9. Under the Fed’s agreement, the banks will be required to pay the amount of the sanctions not used within two years to provide borrower assistance or remediation, or to provide funding for housing counseling. Fed Release.

CFTC Proposed Amendments to Investment Company Reporting Requirements

On February 9, the CFTC proposed to amend reporting requirements for investment companies registered under the Investment Company Act of 1940, the advisers of which would be required to register with the CFTC as commodity pool operators pursuant to amendments adopted by the CFTC to Section 4.5. Comments must be submitted within 60 days after publication in the Federal Register. CFTC Release. CFTC Proposed Rules.

CFTC Amendments to Registration and Compliance Obligations

On February 9, pursuant to Title IV and Title VII of the Dodd-Frank Act, the CFTC adopted final amendments to Part 4 of the CFTC’s regulations that: (i) rescind the exemption from registration provided in Section 4.13(a)(4); (ii) rescind relief from the certification requirement for annual reports provided to operators of certain pools offered only to qualified eligible persons under Section 4.7(b)(3); (iii) modify the criteria for claiming relief under Section 4.5; and (iv) require annual filing of notices claiming exemptive relief under a number of sections of the CFTC’s regulations. In addition, the final rules includes new risk disclosure requirements for commodity pool operators and commodity trading advisors. The final rules will become effective 60 days from publication in the Federal Register, except for amendments to Section 4.27, which will become effective on July 2. CFTC Release. CFTC Final Rules.

FINRA Proposed Amendments To Reporting of Mixed Capacity OTC Trades

On February 8, FINRA requested comment on a proposal to amend FINRA trade reporting rules relating over-the-counter trades in equity securities that are executed by a member firm in a mixed trading capacity (e.g., a single trade execution by a firm as principal and agent). Comments must be submitted by March 26. FINRA Notice.

MSRB Request for Comment on Bondholder Consent Proposal

On February 7, the MSRB requested comments on a draft proposal on the circumstances under which municipal bond underwriters would violate their duty to deal fairly by consenting to certain amendments to bond authorizing documents. The proposal would describe circumstances where an underwriter’s consent to an amendment would violate Rule G-17’s requirements that brokers, dealers, and municipal securities dealers deal fairly with all persons in the conduct of their municipal securities activities. Comments must be submitted by March 6. MSRB Release. Draft Proposal.

RMBS Suits Against Deutsche Bank Dismissed

On February 7, 2012, Judge Jed Rakoff of the Southern District of New York dismissed claims against Deutsche Bank that had been brought by Dexia SA and Teachers Insurance & Annuity Association arising out of the purchase of $1.3 billion in RMBS. Judge Rakoff issued a preliminary order finding that plaintiffs’ complaint did not meet the pleading requirement that claims of fraud must be pled with particularity. In its order, the Court distinguished between claims in connection with loans sponsored Deutsche Bank, which were dismissed without prejudice, and claims in connection with loans not sponsored by Deutsche Bank, which the Court dismissed with prejudice. Judge Rakoff stated that a more formal written opinion will be forthcoming. Order.

Rating Agency Developments – Week of February 6, 2012

On February 3, Fitch updated its global criteria report for non-performing loan transactions. Fitch Report.

On February 2, DBRS released its methodology for North American CRE non-performing loan liquidating trusts. DBRS Report.

On February 1, DBRS released its methodology for Canadian HELOCs. DBRS Report.

On January 31, Fitch updated its private student loan ABS criteria. Fitch Report.

On January 31, Fitch answered frequently asked questions about UK RMBS master trusts. Fitch Report.

On January 30, Fitch updated its criteria on legal uncertainty in emerging market securitizations. Fitch Report

On January 30, Moody’s released its methodology for municipal bonds and commercial paper supported by a borrower’s self-liquidity. Moody’s Report.

On January 30, Moody’s released its pre-2005 RMBS surveillance methodology. Moody’s Report.

On January 30, DBRS released its methodologies for Canadian auto lease and auto loan securitizations. DBRS Auto Lease Report. DBRS Auto Loan Report.

On January 26, S&P gave advance notice of proposed changes to its U.S. local government general obligation bond criteria. S&P Report.

*Note: Free registration is required for Fitch, Moody’s, and S&P reports.