On March 24, the CRE Finance Council (CREFC) released its new market standards for “CMBS 2.0“. The standards include Model Representations and Warranties, Model Repurchase Remediation Language, a Principles-Based Underwriting Framework and disclosure standards in an Annex A that includes more than 180 data fields for each loan and related property collateral. These standards are intended to provide support to U.S. federal regulators in implementing the Dodd-Frank Act’s goal of better aligning investor and originator interests. CREFC’s market standards have been formally delivered to Treasury, the Fed, the FDIC, the SEC, and the OCC, the agencies which are charged with promulgating risk-retention regulations. CMBS 2.0 Market Standards Webpage.
Month: March 2011
SDNY Judge Dismisses MBS Suit against Countrywide
On March 16, 2011, Southern District of New York Judge Kevin Castel granted summary judgment to Countrywide Financial Corporation in a suit claiming that Countrywide had issued risky subprime home loans and misled investors about their underwriting guidelines. Judge Castel ruled that the suit was barred by the Securities Act of 1933’s three-year statute of repose because it was commenced more than three years after the filing of the registration statements and prospectus supplements at issue (the relevant date for plaintiffs’ ’33 Act Section 11 claims) and also more than three years after the securities were sold to plaintiffs (the relevant date for Section 12(a)(2)). Judge Castel rejected plaintiffs’ argument that their claims were tolled by the earlier filing of a class action. Decision.
FDIC Sues Former Washington Mutual Executives and Their Wives
On March 16, 2011, the FDIC filed a complaint against former Washington Mutual CEO, Kerry K. Killinger and his spouse, former COO Stephen J. Rotella and his spouse, and former home loans president David C. Schneider in the US District Court of the Western District of Washington. The complaint alleges that Killinger, Rotella, and Schneider profited by recklessly increasing the risk profile in WaMu’s held-for-investment loan portfolio. The complaint further alleged that these executives were responsible for WaMu’s higher risk home lending program that eventually caused the demise of the bank. In addition to the claims against Killinger, Rotella and Schneider for gross negligence, ordinary negligence and breach of fiduciary duty, the FDIC also asserted claims against Killinger’s and Rotella’s wives, alleging that Killinger and Rotella fraudulently conveyed valuable assets to their wives in order to hinder, delay, or defraud their creditors. Complaint.
Plaintiffs Seeks Approval of $70 Million Settlement in Investor Class Action Against Credit Suisse
On March 10, 2011, lead plaintiffs in an investor class action against Credit Suisse Group AG and related individual defendants filed an unopposed motion in the US District Court for the Southern District of New York asking Judge Marrero to preliminarily approve a $70 million settlement in that action on behalf of all defendants. The investors had sued Credit Suisse for claims under Sections 10(b) and 20(a) of the Exchange Act, alleging that Credit Suisse had inflated its stock price by falsely representing to investors that the firm was successful in limiting the risk and losses of its RMBS and CDOs from the subprime and credit crises because it had exceptional risk management practices and internal controls. The proposed settlement class includes all purchasers of Credit Suisse American Depository Shares on the NYSE and all US residents who purchased Credit Suisse common stock on the Swiss Stock Exchange from February 15, 2007 through April 14, 2008 who have not otherwise timely opted out of the class. Notice. Settlement Agreement. Second Amended Class Complaint.
New Countrywide Stockholder Suit
On March 10, 2011, several Countrywide stockholders filed a complaint against Countrywide Financial Corp., several of its former senior executives, and Countrywide’s independent auditor in the US District Court for the Central District of California. Plaintiffs, who previously opted out of a similar class action, allege that Defendants misled investors concerning the risks and quality of Countrywide’s loan portfolio, the sufficiency of its underwriting guidelines and internal controls, and Countrywide’s financial condition, all of which inflated Countrywide’s stock price and caused plaintiffs to suffer a loss. They assert claims against all defendants for violations of Sections 10(b) and 18 of the Exchange Act, SEC Rule 10b-5, and common law fraud. They also assert claims for violations of Section 20(a) of the Exchange Act against the individual defendants and for negligent misrepresentation against Countrywide and the individual defendants. Complaint.
SEC Charges Mortgage Company and Its President/CEO with Fraud
On March 7, 2011, the SEC filed a complaint against Radius Capital Corporation and its president and CEO, Robert A. DiGiorgio in the US District Court for the Middle District of Florida. The complaint alleges that the defendants falsely represented to investors and Ginnie Mae that the residential loans underlying RMBS it issued were or would be insured by the FHA. The SEC alleges that 70% the loans were not FHA-insured and could not be FHA insured because they failed to meet the FHA’s minimum requirements. The SEC alleges violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and SEC Rule 10b-5. Complaint.
Rating Agency Developments
On March 17, Fitch released new regional rating criteria for Latin America RMBS, and a Mexican RMBS Addendum, which incorporates an increased data analysis observation period for Mexican RMBS transactions. Fitch Release.
On March 17, S&P updated its methodology for rating unregulated issuers’ hybrid instruments and for classifying the equity content of these instruments. S&P Release.
On March 15, Fitch published its criteria for rating U.S. equity REITs and REOCs. Fitch Release.
On March 15, Fitch published its criteria for rating U.S. mortgage REITs and similar finance companies. Fitch Release.
On March 14, Fitch published a comment that the recent out-of-court settlement between the Lehman debtors and the Dante trustee leaves continuing conflicts of law and uncertainty for cash flow structured finance transactions that have interest and currency rate swaps and “flip clauses”. Fitch Comment.
On March 14, Fitch updated its structured finance counterparty criteria. Fitch Release.
On March 14, Fitch published its covered bonds counterparty criteria. Fitch Release.
On March 14, S&P requested comments on its proposed methodology for rating nonsovereign issuers and structured finance transactions that exceed European Monetary Union sovereign ratings. Comments must be submitted by March 28. S&P Release.
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FHFA Extends HARP
On March 11, the FHFA announced a one-year extension of the Home Affordable Refinance Program (HARP), a program administered by Fannie Mae and Freddie Mac, to June 30, 2012. In addition, Freddie Mac will exempt HARP loans from their recently announced price adjustments and Fannie Mae will conform their eligibility date to May 2009. FHFA Release.
SEC Proposed Rules on Beneficial Ownership for Security-Based Swaps
On March 17, the SEC proposed to readopt without change the relevant portions of Rules 13d-3 and 16a-1, in order to clarify that following the July 16 statutory effective date of Section 13(o) of the Exchange Act, which was added by Section 766 of the Dodd-Frank Act, the existing beneficial ownership rules will continue to apply to persons who buy or sell security-based swaps. Comments must be submitted by April 15. Proposed Rule.
Geithner Testimony on Housing Finance Market Reform
On March 15, Treasury Secretary Geithner testified before the Senate Committee on Banking, Housing and Urban Affairs to discuss the Administration’s plan for reforming the housing finance market, which entails: (i) reducing the government’s role in the mortgage market and winding down Fannie Mae and Freddie Mac in a responsible manner; (ii) addressing fundamental flaws in the mortgage market; (iii) improving access to a wider range of affordable housing options; and (iv) setting out ways to structure government support in the housing finance market in the future. Geithner Testimony.