Barclays and Wachovia Settle with NCUA

On October 19, 2015, Barclays PLC and Wachovia Capital Markets LLC agreed to pay $325 million and $53 million, respectively, to settle claims brought by the National Credit Union Administration Board (NCUA), as liquidating agent of five credit unions, regarding residential mortgage backed securities purchased by those credit unions.  NCUA alleged in the actions (filed in New York, California, and Kansas federal courts) that the characteristics of the RMBS and the underlying loans were misrepresented in the offering documents.  NCUA Press Release on Barclays.  NCUA Press Release on Wachovia.  We previously covered two of NCUA’s actions against Wachovia here and here.

RMBS Trustee Wins Partial Dismissal of Investor Claims

On September 29, 2015, Judge Valerie Caproni of the United States District Court for the Southern District of New York partially granted RMBS trustee Bank of New York Mellon’s (“BNYM”) motion to dismiss claims brought by Phoenix Light SF Ltd., and certain other RMBS investors (together, the “Plaintiffs”).  Judge Caproni dismissed Plaintiffs’ breach of fiduciary duty claims as duplicative of Plaintiffs’ breach of contract claims, whose viability Judge Caproni also appeared to doubt in her decision, noting that “[t]he low bar at the motion to dismiss stage salvage[d] Plaintiffs’ claims for now.”  Judge Caproni explained that to survive summary judgment, Plaintiffs would need to demonstrate that BNYM possessed actual knowledge of events of default on a loan-by-loan basis.  Judge Caproni denied BNYM’s motion to dismiss Plaintiffs’ negligence, gross negligence, and negligent misrepresentation claims.  Order.

Claims Dismissed From RMBS Class Action Against Citibank

On September 8, 2015, the Southern District of New York dismissed, for lack of jurisdiction, a large portion of claims from a derivative class action alleging that Citibank NA, as trustee of 27 trusts, had breached its contractual, statutory, and common law duties in connection with $17 billion of pooled loans.  Plaintiffs invoked federal jurisdiction based on the Trust Indenture Act of 1939 (“TIA”) and asked the court to take supplemental jurisdiction over the accompanying state law claims.  Plaintiffs asserted TIA claims in connection with just 3 of the 27 trusts.  The court held that those claims could proceed, denying Citibank’s argument that the TIA does not provide a private right of action.  However, the court declined to exercise supplemental jurisdiction over state law claims relating to the other 24 trusts.  The court concluded that supplemental jurisdiction was permissible, but that it should nonetheless decline such jurisdictions because the claims as to each trust—which must be litigated loan-by-loan and trust-by-trust—were not sufficiently related.  Order.

RMBS Investors Sue U.S. Bank for Trust Losses

On August 5, 2015, RMBS investors filed a putative class action against U.S. Bank, N.A. in the Supreme Court for the State of New York.  The investors assert that U.S. Bank, as trustee for the MASTR Adjustable Rate Mortgage Trust 2006-OA2, harmed certificateholders in failing to timely request repurchase of defective mortgage loans by the sponsor, UBS Real Estate Securities.  The investors cite recent decisions, previously covered here and here, out of the New York federal court dismissing the trustee’s claims against U.B.S. as time-barred as to certain loans.  The complaint includes claims for breach of fiduciary duty, breach of duty to avoid conflicts of interest, breach of the implied covenant of good faith and fair dealing, and violation of New York’s Streit Act.  Complaint.

Judge Cote Grants Partial Summary Judgment in RMBS Suit

On July 10, 2015, Judge Denise Cote of the Southern District of New York granted partial summary judgment in favor of defendants WMC Mortgage LLC and GE Mortgage Holding LLC in an action filed by Trustee Bank of New York Mellon (“BoNY”) in connection with the sale of over $900 Million in RMBS.  Judge Cote dismissed BoNY’s failure to repurchase claim against WMC, citing ACE v. DB Structured Products, which held that a failure to repurchase claim is not a separately enforceable right that gives rise to a separate breach of contract claim independent of a claim for breach of representations and warranties.  Judge Cote also dismissed BoNY’s indemnification claims against both defendants as duplicative of BoNY’s claim for breach of the representations and warranties in the Mortgage Loan Purchase Agreements (“MLPAs”).  BoNY’s primary claim, for breach of representations and warranties, was not a subject of the motion for partial summary judgment.  Opinion and Order.

In a separate decision, also issued on July 10, Judge Cote denied the defendants’ request for a jury trial, holding that the Trustee’s remaining claims, for breaches of the MLPAs and Pooling and Servicing Agreement seek equitable remedies.  Opinion and Order.

Rating Agency Developments

On April 23, Fitch released its updated criteria for rating operational risk of U.S. servicers of RMBS and small balance commercial securitiesReport.

On April 23, Fitch released its updated criteria for rating operational risk of servicers of various structured finance products, including RMBS, CMBS, and ABS.  Report.

On April 22, Moody’s released its rating methodology for monitoring scheduled amortization UK student loan-backed securities.   Report.

On April 21, Fitch released its updated criteria for analyzing trust-preferred CDOsReport.

On April 17, DBRS released its updated criteria for commercial paper liquidity support for non-bank issuers. Report.

On April 17, DBRS released its criteria for rating market-linked securitiesReport.

Rating Agency Developments

On March 27, DBRS released its updated methodology for rating North American commercial mortgage-backed securities (CMBS).  Report.

On March 27, Fitch released its updated criteria for analyzing U.S. wireless tower transactionsReport.

On March 31, Fitch released its updated criteria for analyzing loans securing residential mortgage-backed securities (RMBS) under the ability-to-repay and qualified mortgage standards that the Bureau of Consumer Financial Protection adopted as part of its amendments to Regulation Z under the Truth in Lending Act.  Report.

On April 1, DBRS released its updated methodology for the surveillance of European structured finance and covered bonds transactionsReport.

Motion to Dismiss Action Against RMBS Trustee Denied

On March 31, 2015, Judge Shira Scheindlin of the U.S. District Court for the Southern District of New York denied HSBC Bank USA, National Association’s (“HSBC”) motion to dismiss an action brought by a consortium of investors in RMBS for lack of subject matter jurisdiction.  The plaintiffs’ Complaint alleges, inter alia, that HSBC failed to discharge its duties as Trustee for 271 RMBS Trusts in violation of the Trustee Indenture Act (“TIA”) and state common law.  Because the TIA governs only 27 of the 271 Trusts at issue, the plaintiffs invoked supplemental jurisdiction as the basis for the court to hear the claims as to the remaining 244 Trusts.  Judge Scheindlin denied HSBC’s motion, holding that the plaintiffs’ claims all arise from the “same nucleus of operative fact” because the relevant governing agreements all contain substantially similar contract provisions and impose similar duties on HSBC in its capacity as Trustee.  Judge Scheindlin added that judicial economy would be served by retaining supplemental jurisdiction as proof of both the TIA and non-TIA claims would require depositions of many of the same witnesses.  Order.

UBS and Capital Ventures Settle RMBS Dispute

On March 26, Capital Ventures International and several UBS affiliates filed a stipulation of dismissal after reaching a settlement disposing of all claims in the action.  The terms of the settlement are undisclosed.  Capital Ventures had sued UBS for alleged violations of the Massachusetts Uniform Securities Act in connection with $131 million in RMBS that Capital Ventures allegedly purchased from UBS.  Stipulation.

RBS Motion to Dismiss RMBS Fraud Claim Granted in Part

On March 20, U.S. District Judge Paul G. Gardephe of the Southern District of New York granted in part and denied in part Defendants’ motion to dismiss a complaint filed by several HSH Nordbank affiliates against several RBS affiliates relating to Plaintiffs’ investment in RMBS issued or underwritten by RBS.  The court held that Plaintiffs sufficiently alleged fraudulent intent in connection with alleged misstatements concerning the underlying loans’ compliance with underwriting guidelines, but failed to do so in connection with alleged misstatements concerning the loans’ LTV and CLTV ratios, and owner occupancy rates, as well as the RMBS certificates’ credit ratings and the validity of the assignment of the mortgages to the RMBS trusts.  The court thus allowed Plaintiffs’ fraud and aiding and abetting fraud claims to proceed as to alleged misstatements concerning compliance with underwriting guidelines only.  The court separately dismissed Plaintiffs’ claims for negligent misrepresentation and fraudulent concealment due to the absence of privity, as well as Plaintiffs’ claim for rescission based on mutual mistake.  Order.