Tag Archives: RMBS

Rating Agencies

Rating Agency Developments

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On May 31, Moody’s released its methodology for rating bond funds.  Moody’s Report. 

On May 31, Moody’s released its methodology for rating obligations with variable promises.  Moody’s Report. 

On May 30, Moody’s released its methodology for rating securities issued by U.S. closed-end funds.  Moody’s Report. 

On May 28, Moody’s released its approach to rating RMBS using the “Moody’s Individual Loan Analysis” (MILAN) framework.  Moody’s Report. 

On May 28, Moody’s released its approach to originator assessments in RMBS transactions.  Moody’s Report. 

On May 24, Moody’s released its methodology for rating variable rate demand bonds or commercial paper supported by conditional liquidity facilities.  Moody’s Report. 

On May 24, Moody’s released its approach to rating future receivables transactions.  Moody’s Report. 

On May 24, Fitch released its global structured finance master rating criteria, which is applicable to all structured finance asset classes.  Fitch Report. 

Note: Free registration is required for rating agency releases and reports.

Litigation

District Court Grants J.P. Morgan’s Motion for Summary Judgment Against Dexia in RMBS Suit

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On April 2, Judge Jed Rakoff of the United States District Court for the Southern District of New York largely granted J.P. Morgan’s motion for summary judgment in RMBS litigation brought against it by Dexia, a Belgian bank, and FSA Asset Management.  In a two-page order, the district court dismissed with prejudice all of Dexia’s claims against the defendants, but permitted FSA’s claims as to five RMBS certificates to proceed.  The court indicated that it would issue a written opinion explaining the reasons for these rulings in due course.  Order.

Litigation

Bank of America Discloses NYAG Investigation and SEC Inquiry into RMBS Practices

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In its February 28, 2013 Form 10-K filed with the SEC, Bank of America disclosed that it is under investigation by the New York Attorney General over its purchase, securitization and underwriting of home loans and RMBS.  According to the filing, Bank of America has received several subpoenas and requests for information, particularly relating to its underwriting and issuance of RMBS and involvement with certain collateralized debt obligation offerings.  Additionally, the filing disclosed that the SEC has issued an inquiry to Bank of America regarding the SEC’s investigation of Merrill Lynch’s risk control, valuation, structuring, marketing and purchase of CDOs.  Bank of America disclosed that it is providing documents and testimony to the New York Attorney General and the SEC in full cooperation with both investigations.  Form 10-K Excerpt.

Litigation

S.D.N.Y Denies Motion to Dismiss RMBS Claims Against JPMorgan Chase

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On February 26, Judge Jed S. Rakoff of the federal district court for the Southern District of New York issued a memorandum explaining the reasoning for his September 2012 order denying JP Morgan’s motion to dismiss a lawsuit against it in connection with the sale of $1.6 billion in RMBS.  The suit, brought by FSA Asset Management and Dexia, alleges claims under New York law for fraud, fraudulent inducement, aiding and abetting fraud, negligent misrepresentation and successor liability.  Plaintiffs claimed that JPMorgan and affiliated entities made fraudulent misrepresentations concerning the riskiness of the securitizations at issue and the underlying loans.  The court found that plaintiffs: (a) pleaded the elements of their fraud and fraudulent inducement claims with sufficient detail, (b) provided enough facts to sustain a claim for aiding and abetting fraud, based on allegations that Bear Stearns Co. and JPMorgan Chase & Co. directed the purported fraudulent activity of subsidiary companies and received profits in return, and (c) stated claims for negligent representation based on allegations that the defendants induced the plaintiffs into a relationship of trust, convinced them to forego their own diligence and provided them with deceptive information.  Decision.

Litigation

California Attorney General Brings Action Against Standard and Poor’s

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On February 5, the Attorney General of California, Kamala D. Harris, filed suit in Superior Court in California against Standard & Poor’s and its parent company, the McGraw Hill Company.  The Complaint alleges violations of California’s False Claims Act, Unfair Competition Law, and False Advertising Law, and alleges that S&P made knowingly false representations in connection with credit ratings for RMBS and CDOs between 2004 and 2007.  The complaint further alleges that California’s public pension funds lost hundreds of millions of dollars in connection with their purchase of RMBS rated by S&P.  The state seeks treble damages, civil penalties and a permanent injunction.  Complaint.

Litigation

$193 Million RMBS Suit Against Countrywide Dismissed as Untimely

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On January 10, Judge Mariana R. Pfaelzer of the United States District Court for the Central District of California dismissed a $193 million suit brought by mutual fund Asset Management Fund against several Bank of America and several related entities, including Merrill Lynch and Countrywide Financial.  The case initially was brought in New York Supreme Court and was removed to federal court and later transferred to be part of the Countrywide Multi-District Litigation.  The plaintiffs brought claims for common law fraud, fraudulent concealment, negligent misrepresentation, and aiding and abetting the fraud of others.  The court held that the suit, alleging misrepresentations regarding the underlying mortgage loans including compliance with underwriting rate of owner occupancy, ratio of LTV, and transfer of title, was untimely under all of the statutes of limitations that could apply.  The court granted Asset Management Fund leave to replead as to the $10 million purchase of RMBS it allegedly made after March 1, 2007.  Decision.

Litigation

Southern District of New York Dismisses Investors’ Claims Against Deutsche Bank

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On January 4, Judge Jed S. Rakoff of the Southern District of New York issued a memorandum order explaining the bases for his February 6, 2012 decision that RMBS claims brought by several investor plaintiffs against several Deutsche Bank affiliates would be dismissed, with prejudice in part and without prejudice in part.  Plaintiffs allege that Deutsche Bank made misrepresentations concerning the quality of the loans underlying 43 RMBS that they purchased.  Plaintiffs also allege that Deutsche Bank concealed from plaintiffs that it had taken a short position against its own RMBS, including some of the securities it sold to plaintiffs.  Plaintiffs asserted claims for common law fraud, fraudulent inducement, aiding and abetting fraud, and negligent misrepresentation.  Judge Rakoff held that plaintiffs failed to plead their claims with particularity, as required by Rule 9(b), in a number of ways.  For instance, they failed to state with particularity the alleged misstatements in the offering documents for each of the 43 securities or who made each of those statemens.  Plaintiffs also failed to allege the dates on which they purchased the securities and whether they relied on draft or final versions of the offering documents at the time of purchase.  Judge Rakoff granted plaintiffs leave to amend their claims involving RMBS sponsored by Deutsche Bank.  The claims related to RMBS not sponsored by Deutsche Bank, however, were dismissed with prejudice because Deutsche Bank had only a limited and attenuated role in the offerings.  Order.

Litigation

RBS Wins Dismissal of South Korean Bank Case

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On December 27, 2012, Judge Harold Baer, Jr. of the United States District Court for the Southern District of New York dismissed an action brought by Woori Bank against RBS Securities and related entities claiming fraud, negligent misrepresentation, and unjust enrichment.  Woori alleged that defendants knowingly marketed CDOs based on RMBS that had a greater risk than their ratings suggested, and that RBS fraudulently and negligently induced Woori to buy those CDOs.  Further, Woori alleged that RBS concealed or failed to properly disclose their efforts to manipulate LIBOR rates.  The court dismissed the fraud claim because Woori’s allegations did not specifically connect RBS’s alleged knowledge of problems or suspect behavior to the transactions at issue.  Further, the court found that Woori was unable to show with sufficient specificity any facts that demonstrated RBS had created an inherently unfair transaction by failing to disclose information and accordingly dismissed the negligent misrepresentation claim.  Decision.

Litigation

Trustee Brings Putback Action Against Merrill Lynch

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On December 18, 2012, U.S. Bank, acting in its capacity as Trustee for two Merrill Lynch RMBS trusts that issued over $1 billion in RMBS certificates, filed a complaint in New York Supreme Court against Merrill Lynch.  The Trustee alleges that Merrill Lynch breached representations and warranties concerning the borrowers’ income and employment, the borrowers’ debts and debt-to-income ratio at the time the mortgages were originated, property value and loan-to-value ratios, and the owner-occupancy rates of the underlying properties.  The Trustee asserts seven causes of action for breach of contract, anticipatory breach, and declaratory judgment, and seeks to require Merrill Lynch to repurchase the loans.  Complaint. 

Litigation

Washington Mutual Settles RMBS Suit Brought by Union Central Life Insurance Co.

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On December 17, 2012, two Washington Mutual affiliates settled a lawsuit brought against them by Union Central Life Insurance Co. concerning $4.3 million in Washington Mutual-sponsored RMBS purchased by Union Central.  In its amended complaint, Union Central alleged that Washington Mutual knowingly made false and misleading statements in the RMBS offering materials concerning the loans underlying the certificate, Washington Mutual’s compliance with its underwriting standards, and the accuracy of credit ratings assigned to the offered certificate.  Union Central asserted three causes of action against the Washington Mutual affiliates for common law fraud, unjust enrichment, and aiding and abetting.  Amended Complaint.  Judge George B. Daniels of the Southern District of New York so ordered Union Central’s notice of dismissal of the action with prejudice as to the two Washington Mutual defendants.  No terms of the settlement were provided.  Earlier this year in the same action, Union Central settled its claims against Wells Fargo.  The action continues against other defendants. Order.