Rating Agency Developments

On January 22, Fitch released its rating criteria for rating RMBS in Latin AmericaCriteria.

On January 22, Moody’s released its global methodology for rating small and medium size enterprise balance sheet securitizationsRelease.

On January 20, Moody’s released its approach to rating ABS backed by equipment lease and loansRelease.

On January 20, Moody’s released its approach to rating consumer loan backed ABSRelease.

On January 20, Moody’s released its approach to rating RMBS Using the MILAN FrameworkRelease.

On January 20, Moody’s released its global approach to rating Auto Loan- and Lease-Backed ABSRelease.

On January 20, Moody’s released its global approach to rating financial guarantorsReleaseAnnouncement.

On January 20, Moody’s released its global approach to monitoring life insurance ABSRelease.

On January 20, Fitch released its rating criteria for rating Non-Performing Loan SecuritisationsCriteria.

On January 16, Kroll released its methodology for rating single-family rentalsMethodology.

On January 15, DBRS released its methodology for rating companies in the asset management industryRelease.

JP Morgan Reaches Agreement in Principle to Settle Dispute Over $17.6B in MBS

On January 8, 2015, plaintiffs in a class action lawsuit against JP Morgan Chase informed the court that the parties had an agreement in principle to settle the case. The suit was initially commenced against Bear Stearns in August of 2008, and alleged that the bank misrepresented the underwriting process and the quality of the underlying loans in connection with $17.6 billion in RMBS. The settlement will be subject to approval by Judge Swain of the United States District Court for the Southern District of New York. Preliminary papers seeking such approval are scheduled to be filed on February 2, 2015.  Endorsed Status Report.

Phoenix Light Sues Five RMBS Trustees Over $2.4 Billion in RMBS

On December 23 and 24, Phoenix Light SF Limited and other RMBS certificateholders filed suit against HSBC, Wells Fargo, Deutsche Bank, Bank of New York Mellon, U.S. Bank, and Bank of America in the United States District Court for the Southern District of New York regarding $2.4 billion in RMBS. The complaints assert causes of action under the Trust Indenture Act and a provision of the New York Real Property Law known as the Streit Act, as well as under state law for breach of contract, breach of fiduciary duty, negligence, gross negligence, and negligent misrepresentation. Plaintiffs allege that the trustees breached their duties under the governing trust agreements by failing to notify the investors of deficiencies in the loans, failing to take action to address those alleged deficiencies, and failing to require the repurchase of defective loans. Plaintiffs seek compensatory damages and unspecified equitable relief.  HSBC ComplaintWells Fargo ComplaintDeutsche Bank ComplaintBNY Mellon ComplaintU.S. Bank and Bank of America Complaint.

U.S. Bank Reaches $6 Million Settlement of Claims for Breach of RMBS Trustee Duties

On December 17, the parties in Oklahoma Police Pension and Retirement System v. U.S. Bank, N.A., No. 11-cv-8066 (S.D.N.Y.) asked the court to approve a $6 million settlement of class action claims asserted against U.S. Bank in its capacity as trustee for five RMBS trusts sponsored by Bear Stearns. The class consisted of 1,800 investors who had bought certificates in the trusts. Claims related to nine other trusts had been dismissed earlier in the litigation and were not included in the settlement. The complaint included claims for breach of contract, breach of the covenant of good faith and fair dealing, and violation of the federal Trust Indenture Act.  Motion for ApprovalSettlement Agreement.

$95 Million Settlement Approved in Morgan Stanley RMBS Case

On December 18, Judge Katherine B. Forrest of the United States District Court for the Southern District of New York approved a $95 million settlement to end a class action brought by RMBS investors against Morgan Stanley. The complaint alleged that Morgan Stanley made material misrepresentations regarding its appraisals and underwriting standards of the underlying mortgages in the marketing and sale of the RMBS. Judge Forrest also granted lead plaintiffs’ application for approximately $17.2 million in attorneys’ fees and expenses.  Final JudgmentOrder Granting Attorneys’ Fees and Expenses.

NCUA Sues Wells Fargo for Allegedly Failing to Comply with RMBS Trustee Duties

On December 22, National Credit Union Administration sued Wells Fargo, as an RMBS trustee, in the United States District Court for the Southern District of New York. NCUA filed the suit in its capacity as liquidating agent for five credit unions, collectively alleged to have purchased $2.4 billion in 27 RMBS trusts for which Wells Fargo served as trustee. NCUA alleges that Wells Fargo breached its duties under the governing trust agreements by failing to properly review and monitor the loans underlying the RMBS, failing to notify the investors of deficiencies in the loans, failing to take action to address those alleged deficiencies, and failing to require the repurchase of defective loans. The complaint asserts causes of action under the Trust Indenture Act and a provision of the New York Real Property Law known as the Streit Act.  Complaint.

Ambac Sues Countrywide For Alleged Fraud in Connection with $1.7 Billion in RMBS

On December 27, Ambac Assurance Corporation filed a complaint against several Countrywide entities and Bank of America Corporation in New York state court, seeking to recover at least $600 million in damages in connection with claims payments Ambac allegedly made under insurance policies it issued on eight RMBS trusts. Ambac alleges that between 2005 and 2007, Countrywide made false and misleading statements at meetings with Ambac and in prospectus supplements and loan tapes issued in connection with the trusts that induced Ambac to issue its insurance policies. Ambac asserts a cause of action for fraudulent inducement against the Countrywide entities and a cause of action for successor liability against Bank of America.  Complaint.

Second Circuit Holds that Trust Indenture Act Does Not Apply and Dismisses RMBS Investor Claims Against BNY Mellon

On December 23, the United States Court of Appeals for the Second Circuit dismissed claims against Bank of New York Mellon, as trustee, by four pension funds in a putative class action relating to 530 Countrywide RMBS trusts worth $424 billion. The Second Circuit affirmed the district court’s holding that the plaintiffs did not have standing to assert claims related to certificates issued by trusts in which no plaintiff ever invested. The court further held that the Trust Indenture Act (TIA) does not apply to the trusts because they are “certificate[s] of interest or participation in two or more securities having substantially different rights and privileges” and therefore within an exemption to the TIA. As a result, the court reversed the district court’s decision denying the bank’s motion to dismiss claims under the TIA.  Decision.

U.S. Bank Sues Citigroup in Connection with $528 Million of RMBS

On December 22 and 23, U.S. Bank National Association, as trustee for three RMBS trusts, filed three separate summonses with notice in the Supreme Court of the State of New York. U.S. Bank alleges that Citigroup misrepresented the quality of mortgage loans underlying $528 million in RMBS, and that it breached its duties as servicer by failing to notify the trustee of representation and warranty breaches that it discovered. The trustee seeks compensatory and rescissory damages, along with repurchase of loans not complying with the applicable representations and warranties.  Summons with Notice (2007-AMC2)Summons with Notice (2007-AHL2).  Summons with Notice (2007-AR7).

ResCap’s Claims Against Mortgage Originators in Minnesota Will Proceed

On November 12, Judge Susan Richard Nelson of the United States District Court for the District of Minnesota declined to dismiss claims by the Residential Capital LLC (ResCap) bankruptcy trust against six mortgage originators.  ResCap alleges that the six originators—Academy Mortgage Corp., First California Mortgage Corp., Provident Funding Associates, L.P., T.J. Financial, Inc., Universal American Mortgage Company, LLC, and Wells Fargo Financial Retail Credit, Inc.—breached representations and warranties in regard to almost $4 billion in RMBS.  ResCap asserts claims for breach of representation and warranty and for indemnification. Judge Nelson held that ResCap’s allegations stated a claim for breach of warranty without identifying specific allegedly breaching loans. The Court further held that ResCap had standing to bring these claims, and the claims were not time-barred because they were brought within the two-year period for debtor claims under the Bankruptcy Code.  Order.