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 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.
On February 4, Morgan Stanley disclosed in a regulatory filing that it has agreed, in principle, to a settlement for US$1.25 billion with the Federal Housing Finance Agency to resolve claims pending in the United States District Court for the Southern District of New York related to the sale of US$10.58 billion in RMBS between 2005 and 2007. The FHFA, as conservator for Fannie Mae and Freddie Mac, asserted claims for violations of federal and state securities laws on the basis of allegedly false and misleading statements and omissions in the registration statements and prospectuses of securities sold to Freddie Mac and Fannie Mae. Form 8-K. Complaint.
On January 28, Judge Denise Cote of the U.S. District Court for the Southern District of New York denied Goldman Sachs’s motion to compel arbitration for RMBS claims brought by the National Credit Union Administration (NCUA). NCUA brought the claims as the liquidating agent of the Southwest Corporate Federal Credit Union. Goldman sought to compel arbitration under an agreement between Southwest and Goldman Sachs from 1992. The court held that NCUA has the power to repudiate contracts of a credit union in liquidation under the terms of its enabling legislation, and exercised that authority here. NCUA’s claims under Sections 11 and 12 of the Securities Act of 1933 and under the Texas Securities Act will proceed in federal district court. Order.
On January 30, Fitch released its criteria for rating structured finance servicers of various products, including RMBS, CMBS and ABS. Fitch Report.
On January 30, Fitch released its criteria for rating operational risk of U.S. servicers of RMBS and small balance commercial securities (SBC). Fitch Report.
On January 30, Moody’s released its methodology for rating securitizations backed by loans granted to small- and medium-sized enterprises (SMEs). Moody’s Report.
On January 30, DBRS released its methodology for rating European covered bonds. DBRS Report.
On January 29, Fitch released its criteria for rating U.S. private student loan ABS. Fitch Report.
On January 29, DBRS released its criteria setting forth the financial ratios and accounting treatments used to analyze non-financial companies. DBRS Report.
On January 28, Fitch released its criteria for rating non-performing loan (NPL) securitizations. Fitch Report.
On January 27, Fitch released its criteria for rating variable-rate demand obligations (VRDOs) and commercial paper (CP) issued with external liquidity support. Fitch Report.
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On January 22, Judge Denise Cote of the U.S. District Court for the Southern District of New York trimmed claims from a lawsuit brought by the National Credit Union Administration Board, as liquidating agent for various federal credit unions, alleging that two Morgan Stanley entities made material misrepresentations in the offering documents for $400 million in RMBS. Partially granting Morgan Stanley’s motion to dismiss, the court held that NCUA’s federal securities claims were time-barred under the three-year statute of repose imposed by the Securities Act of 1933. In reaching this conclusion, the court found that NCUA did not become conservator for the credit unions until after the statute of repose had run, and therefore could not avail itself of a provision of the Federal Credit Union Act that extends the limitations period for actions brought by the NCUA. Despite its dismissal of NCUA’s federal securities claims, the court ruled that securities claims against Morgan Stanley brought under Illinois and Texas blue sky laws both were timely and adequately pled. Decision.
On December 24, Justice O. Peter Sherwood of the New York Supreme Court granted with prejudice Nomura Credit & Capital Inc.’s motion to dismiss an RMBS repurchase lawsuit as time-barred. Following the Appellate Division decision in ACE Securities v. DB Structured Products summarized above, Justice Sherwood held that the plaintiff’s claims for breach of representations concerning individual mortgage loans accrued when the representations were made; that is, on the date of the agreement containing those representations. Justice Sherwood further held that because the Trustee – the only party with standing to sue – did not assert its claims until more than six years after the date the representations were made, its claims were barred under New York’s statute of limitations. Orrick represented Nomura in this lawsuit. Order.
On December 17, J.P. Morgan Chase Bank filed a complaint in the United States District Court for the District of Columbia against the Federal Deposit Insurance Corporation (FDIC) seeking $1 billion in indemnification for settlements made by J.P. Morgan on behalf of Washington Mutual in RMBS actions. J.P. Morgan alleges that the FDIC is contractually obligated to indemnify J.P. Morgan for certain claims against WaMu in consideration for J.P. Morgan’s purchase of WaMu out of FDIC receivership and assumption of its liabilities. J.P. Morgan seeks indemnification for settlements of twenty different RMBS cases; the complaint does not identify the amounts of the individual settlements. Complaint.