New York Court Orders BlackRock to Seek Discovery from Former Certificateholders and Produce That Information in Suit Against RMBS Trustee

On June 3, 2016, Judge Sarah Netburn of the U.S. District Court for the Southern District of New York ordered BlackRock, an RMBS certificateholder that has sued the RMBS trustee, HSBC, to identify and serve document subpoenas on the former owners of BlackRock’s RMBS certificates. BlackRock’s lawsuit against HSBC (which we previously discussed here) asserts several causes of action arising out of HSBC’s alleged failure to fulfill its contractual, statutory, and fiduciary obligations as Trustee. HSBC argued in its motion to compel production that the requested documents from the former owners are directly relevant to proving HSBC’s affirmative defenses and showing that BlackRock lacks standing to assert the litigation rights of the prior certificateholders.  The Court agreed, holding that BlackRock cannot assert the litigation rights of the prior certificateholders without assuming the corresponding discovery obligation.  Order.

FDIC Settles RMBS Litigation for $190 Million with U.S. Financial Institutions

On May 26, 2016, the FDIC reached a $190 million settlement of RMBS claims against eight financial institutions, including Barclays Capital Inc.; Deutsche Bank Securities Inc.; Goldman, Sachs & Co; RBS Securities Inc.; and UBS Securities LLC. The settlement resolves six separate suits brought in 2011 and 2012 in California and Alabama alleging misrepresentations within the defendant underwriters’ RMBS offering documents.  The FDIC, as a receiver, will distribute the settlement funds among five failed bank receiverships.  FDIC Settlement Agreement.

Tennessee Chancery Court Denies Motion to Dismiss $164 Million RMBS Suit Brought by Tennessee Pension Fund

On May 24, 2016, Chancellor Carol L. McCoy of the Chancery Court for Davidson County, Tennessee, declined to dismiss claims brought by the Tennessee Consolidated Retirement System (“TCRS”) against several large financial institutions related to $164 million in alleged losses on mortgage-backed securities.  The banks argued that the case was barred by the three-year statute of limitation for common law fraud claims in Tennessee and the two-year limit for claims under the Tennessee Securities Act.  Invoking the doctrine of nullum tempus occurit regni (“no time runs against the king”), however, the court held that limitations periods do not apply to the state or its political arms, such as TCRS.  The court also held that TCRS adequately alleged the elements of its fraud, constructive fraud, negligent misrepresentation, and Tennessee Securities Act claims. Order.

HSBC Sues Merrill Lynch and Bank of America for $420 Million Relating to RMBS Deal

On May 24, 2016, HSBC Bank USA, N.A., in its capacity as Trustee of Merrill Lynch Alternative Note Asset Trust, Series 2007-0AR5 (“the Trust”), served a summons with notice on Merrill Lynch Mortgage Lending, Inc. (“Merrill”), Countrywide Home Loans, Inc. (“Countrywide”), and Bank of America, N.A. (“BofA”), in their respective capacities as sponsor, originator, and servicer of the Trust, alleging that the three Defendants discovered that mortgage loans securitized in the Trust breached certain representations and warranties and failed to notify the Trustee in accord with their contractual obligations.  Specifically, HSBC alleges that Merrill, Countrywide, and BofA discovered the breaches through (i) the performance of their respective roles as issuer, originator, and servicer; and (ii) through their participation in multiple government investigations related to the origination, securitization, and servicing or mortgage loans.  The summons with notice seeks $420 million in damages. Summons with Notice.

Rating Agency Developments

On May 18, 2016, Fitch issued a report entitled: Fitch: NSFR Rule Could Constrain Trust Banks’ Liquidity Position. Report.

On May 16, 2016, Fitch issued a report entitled: Fitch: Confidence in US Marketplace Lending ABS Takes a Hit. Report.

On May 12, 2016, Fitch issued a report entitled: Fitch Updates U.S. RMBS Seasoned and Re-Performing Loan Criteria. Report.

On May 12, 2016, Fitch issued a report entitled: Fitch Updates U.S. RMBS Loan Loss Model Criteria. Report.

On May 12, 2016, Fitch issued a report entitled: Fitch Publishes Revised EETC Criteria: Allows for Ratings in the ‘AA’ Category. Report.

Federal Appellate Court Reinstates RMBS Action Against Moody’s

On May 2, 2016, the First Circuit Court of Appeals reinstated a $5.9B suit brought by the Federal Home Loan Bank of Boston (“FHLBB”), alleging that Moody’s Corp and Moody’s Investor’s Service, Inc. (together, “Moody’s”) knowingly provided false ratings on certain Residential Mortgage-Backed Securities purchased by FHLBB. The case had been dismissed for lack of personal jurisdiction by Judge George A. O’Toole Jr. of the District of Massachusetts, who also held that the court could not transfer the case to another federal court where jurisdiction would be proper because 28 U.S.C. §1631 only permitted the transfer of cases dismissed for lack of subject matter jurisdiction, rather than personal jurisdiction.

The First Circuit vacated that decision, concluding that the plain language of 28 U.S.C. §1631, the statute’s legislative history, and case law from other Circuits all weighed in favor of a ruling that the statute also permits transfer where the claims at issue were dismissed on either personal or subject matter jurisdiction grounds. Accordingly, the First Circuit remanded the case to the district court to determine whether transfer was “in the interests of justice,” in accord with the statutory requirement for transfer under 28 U.S.C. §1631.  Decision.

Bank of America Settles RMBS Actions for $190 Million

On April 25, 2016, the Federal Home Loan Bank of Seattle (“FHLBS”) agreed to a $190 million settlement with Bank of America in connection with multiple lawsuits filed in 2010 stemming from the sale of hundreds of millions of dollars of RMBS.  FHLBS alleged that Bank of America made misstatements or omissions in connection with the issuance of the RMBS in violation of the Washington State Securities Act.  Additional details of the settlement are not publicly available.

Justice Friedman of the New York Supreme Court Dismisses Two FHFA Repurchase Actions

On April 12, 2016, Justice Marcy Friedman of the New York Supreme Court granted motions to dismiss in two RMBS breach of contract actions filed by FHFA against Morgan Stanley ABS Capital I Inc. (“MSAC”) and Morgan Stanley Mortgage Capital Holdings LLC (“Morgan Stanley”).  In the decisions, he Court dismissed the actions on similar grounds and granted the parties the opportunity to brief claims for failure to notify, in light of the October 13, 2015 First Department’s decision in Nomura Home Equity Loan Inc. Series 2006-FM2 et al. v. Nomura Credit & Capital Inc.

Like Justice Friedman’s ruling last month in ACE Securities v. DB Structured Products, Inc., which we previously covered, the Court held that both actions were not rendered untimely by the Plaintiff’s failure to file repurchase demand condition precedent prior to the filing of the summons with notice.  However, the FHFA, as certificate holder, lacked standing to commence the action and thus the Trustee’s cause of action was untimely because it did not relate back to the FHFA’s summons with notice.  In so holding, the Court rejected the Trustee’s arguments in both cases that the action was timely commenced, and also that the accrual clause in the RMBS extended the statute of limitations, and that the federal Housing and Economic Recovery Act of 2008, applicable to certain actions brought by FHFA, extended the limitations period.  Finally, the Court also held that no tolling agreements saved Trustee’s claims, and also dismissed the causes of action for breach of the implied covenant of good faith and fair dealing, breach of repurchase obligations, and anticipatory breach. Decision 116. Decision 134.

Rating Agency Developments

On April 13, Moody’s published its approach to rating obligations with variable promises, where the source of variation is related to non-standard or non-credit-related reference factors. Report.

On April 7, Fitch published its criteria for rating tender option bonds. Report.

On April 7, Fitch published its criteria for rating Mexican residential mortgage-backed securities (RMBS). Report.

On April 7, DBRS published its criteria for rating companies in the television broadcasting industry. Report.

On April 7, DBRS published its criteria for rating companies in the radio broadcasting industry. Report.

On April 7, DBRS published its criteria for rating companies in the printing industry. Report.

On April 7, DBRS published its criteria for rating companies in the publishing industry. Report.

Goldman Sachs Set to Pay $5.1 Billion in RMBS Settlement

On April 11, Goldman Sachs agreed to pay roughly $5.1 billion in a settlement with federal and state officials regarding the marketing and sale of RMBS during the years leading up to the financial crisis.  The settlement is divided into a $2.4 billion civil penalty, $1.8 billion for consumer relief and $875 million in cash.  Cash payments will primarily be divided among the National Credit Union Administration, the Federal Home Loan Banks and the States of California, Illinois and New York. Goldman Settlement.