On February 27, the Federal Housing Finance Agency (FHFA) announced that it reached a settlement with French bank Société Générale of an RMBS suit in the U.S. District Court for the Southern District of New York. FHFA alleged violations of federal and state securities law in connection with RMBS purchased by Fannie Mae and Freddie Mac in 2006. The settlement agreement contains no admission of liability or wrongdoing. Société Générale and four of its subsidiaries will pay $122 million dollars to the agency. Press Release.
On February 24, monoline insurer Syncora Guarantee, Inc. announced that it had reached a settlement of RMBS litigation against JP Morgan Chase for an undisclosed sum. Syncora had alleged that J.P. Morgan and its affiliates misrepresented the quality of loans underlying RMBS securitizations insured by Syncora. Press Release.
On February 25, Morgan Stanley disclosed that it had reached an agreement in principle with the SEC staff to pay $275 million in disgorgement and penalties in settlement of an investigation into subprime RMBS sponsored and underwritten by Morgan Stanley in 2007. The settlement would cover alleged violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act, and Morgan Stanley would neither admit nor deny the allegations. The settlement remains subject to final approval by the Commission. SEC Filing.
On February 13, Justice Eileen Bransten of the Supreme Court of the State of New York dismissed in part a second amended complaint filed by U.S. Bank as trustee for HarborView Mortgage Loan Trust, Series 2005-10. As in its prior decision on a similar claim , the court held that U.S. Bank could not, under the relevant contracts, seek repurchase of all loans in the trust on the basis of alleged “pervasive breaches” of representations and warranties related to mortgage loans. Plaintiff’s breach of contract claims related to 495 loans will proceed. Order.
On February 14, Judge Denise Cote of the United States District Court for the Southern District of New York denied Bank of America’s request to reconsider the court’s earlier order disallowing use of documents produced by plaintiff Federal Housing Finance Agency in a case against Countrywide pending in California. The court found that the parties had obtained sufficient documents to litigate the claims and defenses at issue and that allowing a party to use documents from other litigation in motion practice or at trial would undermine the discovery procedures established by the Court. Order.
On February 14, Judge Analisa Torres of the United States District Court for the Southern District of New York granted in part defendant Sand Canyon Corporation’s motion to dismiss the amended complaint of plaintiff Homeward Residential related to Option One Mortgage Loan Trust 2006-3. The court dismissed plaintiff’s claim for alleged breach of representations and warranties to the extent based on the representation that there is no material default existing under the mortgage note for each loan. The court also dismissed the plaintiff’s claims for breach of the duty to repurchase and for indemnification. Plaintiff’s claim for breach of contract related to appraisals and income, employment and debt verification will proceed. Order.
On February 14, the Royal Bank of Scotland and a plaintiff class, led by New Jersey Carpenters Health Fund and the Boilermaker Blacksmith Pension trust, reported to the court that the parties had reached a settlement in principle in an RMBS case in the United States District Court for the Southern District of New York. Plaintiffs brought claims under the federal securities laws in connection with fourteen RMBS securitizations. According to a statement made by plaintiffs’ lead counsel, the settlement amount is $275 million. Joint Letter. Statement.
On February 10, non-profit corporation Better Markets, Inc., filed a complaint in the United States District Court for the District of Columbia against the United States Department of Justice and the Attorney General of the United States. The complaint seeks injunctive and declaratory relief in connection with the recent US$13 billion settlement between DOJ and JPMorgan Chase & Co. The settlement covers allegedly misleading conduct in RMBS securitizations. Better Markets alleges that the DOJ did not have the authority to confidentially negotiate the settlement and then enter into the deal without court approval. Better Markets asks the court to enjoin the DOJ from enforcing the agreement unless it is reviewed by a court, and to declare that the DOJ violated the Administrative Procedures Act and 28 U.S.C. Section 2201(a). Complaint.
On February 6, a jury in the United States District Court for the Middle District of Florida found the CEO of the now-defunct Radius Capital Corp., Robert A. DiGiorgio, knowingly or recklessly made false or misleading statements to Ginnie Mae and the investing public in connection with US$23 million in MBS Radius issued in 2005 and 2006. The Securities and Exchange Commission, which brought the case, alleged that Radius and DiGiorgio violated federal securities laws and fraudulently induced Ginnie Mae to guarantee the bonds by representing that the underlying loans were or would be insured by the Federal Housing Administration (FHA), when in fact the majority of the loans were ineligible. The suit alleged Radius employees routinely ignored FHA underwriting standards at DiGiorgio’s direction. In its verdict, the jury determined that Mr. DiGiorgio violated Sections 17(a)(1), (2), and (3) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rules 10b-5(a), (b), and (c) promulgated thereunder. Verdict.
On January 31, Justice Barbara R. Kapnick of the Supreme Court of New York for New York County approved, with one exception, an US$8.5 billion settlement between Bank of America and a group of RMBS investors. The Bank of New York Mellon, acting as the trustee for trusts that in the aggregate issued US$424 billion in RMBS backed by mortgages originated by Countrywide, entered into an agreement with Bank of America in 2011 to resolve claims alleging breaches of representations and warranties and alleged violations of prudent servicing obligations. After more than two years of State and Federal Court proceedings, Justice Kapnick approved the settlement, and found that BNY Mellon as Trustee did not abuse its discretion or act in bad faith or outside the bounds of reasonable judgment in reaching the settlement, except to agree to the settlement of certain loan modification claims, which the Court did not approve. The Court declined to approve the compromise of the loan modification claims based on its conclusion that BNY Mellon settled those claims “without investigating their potential worth or strength.” Order.