On November 21, the Court of Appeals for the Second Circuit affirmed the dismissal of a suit brought by South Korea‘s Woori Bank against Merrill Lynch & Co., Inc. and Bank of America Corp. on statute of limitations grounds. The bank brought claims for fraud, rescission, negligent misrepresentation and unjust enrichment on May 18, 2012 stemming from its $143 million investment in several collateralized debt obligations. The Second Circuit agreed with the lower court that publicity about Merrill Lynch’s CDOs, related lawsuits and government investigations sufficiently alerted Woori to any claims prior to May 2009. The bank’s claims were therefore time-barred under South Korea’s applicable three year statute of limitations. Decision.
On November 25, Fifth Third Bancorp announced a $25 million settlement agreement with Freddie Mac related to mortgages sold by the bank prior to January 1, 2009. Per the agreement, Fifth Third Bancorp agreed to repurchase all nonconforming loans it sold to Freddie Mac, including those not identified in repurchase demands. Press Release.
On December 2, Bank of America announced that it settled claims brought by Freddie Mac for $404 million. The settlement resolves all remaining representations and warranties claims against Bank of America brought by Freddie Mac related to residential mortgage loans sold to the government-controlled company between 2000 and 2009. The settlement does not cover loan servicing obligations, loans in private label securitizations, or securities and disclosure claims. Press Release.
On November 22, Justice Shirley Werner Kornreich of the Supreme Court of the State of New York partially dismissed a putback action brought by the trustee for the J.P. Morgan Mortgage Acquisition Trust 2006-WMC4 against J.P. Morgan Chase & Co. and WMC Mortgage. The court held that damages are available only as to loans that breached representations and warranties. The court rejected, however, JPMorgan’s argument that dismissal of certain breach claims was warranted by temporal limitations on the bank’s “bringdown” representations and warranties. The court also denied the motion to dismiss the plaintiff’s indemnification claim at the pleading stage. Decision.
On November 21, Justice Shirley Werner Kornreich of the Supreme Court of the State of New York granted in part defendant DB Structured Products, Inc.’s (DB) motion to dismiss the complaint of ACE Securities Trust 2007-HE1. The court held that the trust could not obtain rescission of the entire transaction, or “complete refund” damages as to loans that did not breach the bank’s representations and warranties. The court denied the motion to dismiss, however, to the extent that DB sought an order precluding the trust from maintaining putback claims as to loans that were not identified in the trust’s demand letters. Decision.
On November 15, JPMorgan Chase & Co. agreed to pay 21 institutional investors $4.5 billion to settle all representation and warranty claims, as well as servicing claims, in respect of all RMBS securitizations issued by JPMorgan and Bear Stearns between 2005 and 2008. In addition, JPMorgan agreed to implement servicing changes to mortgage loans in the trusts. The settlement does not resolve claims against Washington Mutual Inc. Press Release.
On November 19, the U.S. Department of Justice announced that JPMorgan Chase & Co. has agreed to pay $13 billion to settle a number of federal and state RMBS-related civil claims against JPMorgan and two institutions that JPMorgan acquired, Bear Stearns and Washington Mutual Inc. (WaMu). Under the terms of the settlement, $4 billion will be distributed in consumer-related relief for mortgage writedowns, anti-blight work and mortgage payment reductions. The agreement also includes a previously-announced $4 billion settlement with the Federal Housing Finance Agency. Additionally, JPMorgan will pay a $2 billion civil penalty to the Justice Department for claims brought under the Financial Institutions Reform, Recovery and Enforcement Act, $1.4 billion to the National Credit Union Administration, $515.4 million to the Federal Deposit Insurance Corp. and over $1 billion combined to the states of California, Illinois, Massachusetts, Delaware and New York. JPMorgan acknowledged in a statement of facts that its employees and employees of Bear Stearns and WaMu failed to disclose to securitization investors that certain loans did not comply with underwriting guidelines. The settlement does not resolve any potential criminal liability of JPMorgan or its employees. Settlement Agreement. Statement of Facts.
On November 12, the liquidators for two Bear Stearns overseas hedge funds filed their complaint against McGraw Hill, Standard & Poor’s, Moody’s, and Fitch (collectively the rating agencies) in an action in New York Supreme Court alleging that fraudulent ratings led to over $1 billion in losses for the funds’ investors. According to the complaint, the funds invested in a portfolio of high-grade structured finance products, including CDOs and RMBS, where “at least 90% had the highest rating available,” and therefore depended heavily on ratings in making investment decisions. The complaint alleges that the rating agencies knew that the ratings assigned to the securities in which the funds invested were false. Plaintiffs claim that the rating agencies lacked independence from the issuers of the securities and that their ratings were tainted by a desire to maintain market share in a profitable industry. The funds also allege that the rating agencies used relaxed standards in their initial ratings and subsequently failed to conduct proper ongoing surveillance of rated securities, leading to delays in downgrading ratings for allegedly faulty securities. The liquidators initially commenced the action in July through New York’s summons with notice procedure. Complaint.
On November 6, Wells Fargo & Co. disclosed in a regulatory filing with the Securities and Exchange Commission that it settled claims by the Federal Housing Finance Agency (acting as conservator to Fannie Mae and Freddie Mac) against it for approximately $335 million. Wells Fargo noted that Fannie Mae and Freddie Mac had opted out of a class settlement approved in 2011 in a suit alleging misstatements in the offering documents for the RMBS securitizations. 10Q Excerpt.
On November 1, U.S. Bank National Association, acting in its capacity as trustee for Citigroup Mortgage Loan Trust 2007-AHL2, filed a lawsuit in the Supreme Court for the State of New York against Citigroup Global Markets Realty Corp. (Citigroup), on behalf of and at the direction of a holder of certificates issued by the trust. The trustee alleges, inter alia, that Citigroup breached its obligations arising under the Mortgage Loan Purchase Agreement (MLPA) and Pooling and Servicing Agreement for the deal. In particular, the trustee alleges that certain of the mortgage loans backing the certificates did not comply with the representations and warranties made in the MLPA, and that Citigroup failed to cure or repurchase those mortgage loans. The trustee seeks rescissory and compensatory damages and/or an order requiring Citigroup to repurchase the loans at issue. Summons.