Month: July 2011

Dexia SA Cites Deutsche Bank’s Internal MBS Descriptions In Suit Over $1 Billion in RMBS Purchases

On July 13, 2011, Dexia SA filed a lawsuit in New York State Supreme Court against Deutsche Bank AG and several of its affiliates in connection with its purchase of more than $1 billion in RMBS between 2005 and 2007 from the Deutsche Bank defendants. Dexia asserts state law claims for fraud, fraudulent inducement, aiding and abetting fraud and negligent misrepresentation. The complaint alleges that the defendants made false or misleading statements to prospective investors touting the quality of the RMBS, the underlying loans and the defendants’ due diligence process while, at the same time, defendants’ internal documents disparaged the RMBS and the defendants took positions in CDOs and credit default swaps that were effectively betting against the performance of similar RMBS. Dexia Complaint vs. Deutsche Bank.

National Credit Union Administration Sues RBS Securities Inc. Over RMBS Sales

On July 18, 2011, the National Credit Union Administration (“NCUA”) filed a lawsuit against RBS Securities Inc. (“RBS”) in United States District Court for the Central District of California. NCUA alleges that RBS misled Western Corporate Federal Credit Union (“WesCorp”) about the safety of mortgage-backed securities. The lawsuit alleges violations of Sections 11 and 12(a)(2) of the ’33 Act as well as the California Corporate Securities Law. NCUA alleges RBS made untrue statements of material fact regarding borrowers’ likelihood to repay the mortgage loans, reduced documentation programs, loan-to-value ratios, and credit enhancement. NCUA previously filed similar lawsuits against JP Morgan and Royal Bank of Scotland. NCUA Complaint vs. RBS.

Challenges Mount to Bank of America’s Proposed $8.5 Billion Settlement

Numerous investor groups, regulators and politicians have challenged Bank of America’s June 29, 2011 announcement proposing an $8.5 billion settlement of claims based on representations and warranties made by Countrywide in RMBS securitizations. Between July 5 and July 13, four separate groups of investors each moved to intervene in the Article 77 proceeding brought by Bank of New York Mellon, as Trustee or Indenture Trustee of the various securitization trusts, seeking judicial approval of the settlement. Potential objections have been voiced to the size of the settlement, potential conflicts of interest, and a failure to provide sufficient information to evaluate the settlement terms. On July 12, New York Attorney General Eric Schneiderman reportedly sent letters to investors that participated in the settlement negotiations seeking additional information, suggesting that the Attorney General’s office may object to the settlement. Representative Brad Miller, a North Carolina Democrat, raised additional questions about the terms of the settlement in a July 8 letter to the Federal Housing Finance Agency. Walnut Place Motion to Intervene. Pension Fund Motion to Intervene. TM1 Motion to Intervene. FHLB Motion to Intervene. Miller Letter.

Eighth Circuit Decision Creates Risk and Uncertainty

On July 14, 2011, the United States Court of Appeals for the Eighth Circuit issued a decision that will adversely affect the legal rights of premium finance lenders and investors in life settlements originated in Minnesota. For a complete summary of the ruling, please click here.

FINRA Rule on Operations Professional Continuing Education Requirement

On July 22, the SEC approved FINRA’s proposal to establish a registration category, and qualification examination and continuing education requirements for certain operational personnel. These requirements will be effective on October 17. FINRA Notice.

SEC FAQ on Mid-Size Advisers

On June 28, the Division of Investment Management of the SEC issued FAQs regarding advisers with assets under management between $25 million to $100 million (Mid-Size Advisers). The FAQs remove Minnesota from the list of states in which a Mid-Size Adviser would not be subject to examination by a state securities authority. Mid-Size Advisers located in New York and Wyoming will still be required to register with the SEC. For a discussion of Mid-Size Advisers, see “Final Rules Affecting Private Fund Advisers Adopted Under the Dodd-Frank Act“. SEC FAQ.

Rating Agency Developments

On July 21, Moody’s revised its methodology for rating commercial real estate CDOs. Moody’s Release.

On July 20, Fitch introduced Viability Ratings for global financial institutions, which represent Fitch’s primary assessment of the intrinsic creditworthiness of these institutions. Fitch Release. Fitch Report.

On July 19, Fitch updated its U.S. Private Student Loan ABS Rating Criteria. Fitch Release. Fitch Criteria.

On July 15, Moody’s updated its methodology for rating U.S. RMBS deals issued between 2005 and 2008. Moody’s Release.

Note: Free registration is required for Fitch and Moody’s releases and reports.

HFSC Approves Bill to Repeal Section 939G of Dodd-Frank Act

On July 20, the House Financial Services Committee approved H.R. 1539, the “Asset-Backed Market Stabilization Act of 2011”, to repeal Section 939G of the Dodd-Frank Act. The repeal of Section 939G would reinstate Rule 436(g) of the Securities Act under which NRSROs are excluded from being treated as experts subject to expert liability when credit ratings are included in registration statements under the Securities Act. HFSC Release. HFSC Act.

Fed Notice on Enforcement of OTS Regulations

On July 21, the Fed, pursuant to the Dodd-Frank Act, issued a notice of its intention to continue to enforce certain current OTS regulations after the Fed assumes supervisory responsibility for savings and loan holding companies and their non-depository subsidiaries from the OTS on July 21. Comments must be submitted on or before August 31. Fed Release. Fed Notice.