Bank of America Settles RMBS Securities Claims for US$9.3 Billion

On March 26, Bank of America and the Federal Housing Finance Agency (FHFA), as conservator of Fannie Mae and Freddie Mac, announced a settlement of FHFA’s RMBS-related suits against the Bank.  The Bank has agreed to pay approximately US$9.3 billion to settle allegations that it violated federal and state securities laws in connection with private-label RMBS purchased by Fannie Mae and Freddie Mac between 2005 and 2007.  Pursuant to the agreement, approximately US$5.83 billion will be allocated by FHFA to settle all claims asserted in four lawsuits brought by FHFA against Bank of America, Countrywide, and Merrill Lynch, and the remainder will be allocated to repurchases by Bank of America of RMBS held by Fannie Mae and Freddie Mac.  Bank of America Press ReleaseFHFA Press ReleaseSettlement Agreement.

Repurchase Suits to Proceed Against DB Structured Products

On March 20, Judge Alison J. Nathan of the United States District Court for the Southern District of New York granted in part and denied in part DB Structured Products, Inc.’s, (DBSP) motions to dismiss four lawsuits brought by HSBC Bank as trustee of four different residential mortgage securitization trusts.  The court dismissed the trustee’s claims for a declaration that DBSP is required to reimburse the trustee for expenses incurred in enforcing its remedies under the relevant contracts, including costs and attorney’s fees, on the basis that the trustee could seek such reimbursement without the need for declaratory relief.  The court denied DBSP’s motion to dismiss the trustee’s breach of contract claims for failure to comply with the contractual requirements for a demand to repurchase allegedly breaching loans, holding that DBSP’s discovery of breaches of representations and warranties was adequately pleaded and provided a sufficient basis for the claims to proceed without evaluating the sufficiency of such demand.  The court also allowed claims for damages to proceed.  Order.

New York Appellate Court Denies Motion for Reargument of ACE Ruling

On March 20, the Appellate Division, First Department denied an RMBS trustee’s motion for reargument of or, alternatively, leave to appeal to the Court of Appeals (New York’s highest court) from the First Department’s December 19, 2013 Decision and Order dismissing the trustee’s mortgage loan repurchase action against DB Structured Products as time barred.  As described in the January 6 edition of the Week in Review, the First Department’s order held that repurchase claims arising from alleged breaches of representations and warranties concerning mortgage loans accrue when the representations and warranties allegedly were breached, and not on the later date when a defendant refuses to repurchase a loan.  The trustee’s complaint was untimely because it was not filed within six years of the alleged breach and did not relate back to an earlier complaint filed by certificate holders that lacked standing to sue.  The trustee now has thirty days to seek leave directly from the Court of Appeals to appeal to that court.  Order.

Société Générale Agrees to $122M Settlement in RMBS Suit

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.

Morgan Stanley to Settle RMBS Securities Claims by the SEC for $275 Million

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.

Motion to Dismiss Granted in Part in Repurchase Suit Against BofA, Countrywide

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.

Court Denies BofA’s Motion to Reconsider Use of FHFA Documents Produced in Other RMBS Litigation

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.

Homeward Residential’s RMBS Claims Against Sand Canyon Dismissed in Part

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.

Royal Bank of Scotland Reaches Settlement in Class Action

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 LetterStatement.