On August 31, 2011, HSH Nordbank AG filed a summons in New York State Supreme Court against JP Morgan and affiliated entities in connection with the sale of $159 million in five RMBS transactions. In its summons, HSH Nordbank alleges that, in the offering materials for each securitization, JP Morgan Chase made material misrepresentations and omissions regarding the underwriting standards used to originate the loans, loan-to-value ratios of the loans, and percentage of owner-occupied properties. HSH Nordbank seeks a minimum of $42 million in damages. Summons.
Month: September 2011
More Entities Intervene and Demand Information Regarding Bank of America’s Proposed $8.5 Billion Settlement
Two additional entities have formally objected to the proposed Bank of America settlement. The Federal Deposit Insurance Corp. (“FDIC”) filed an objection on August 29, 2011. The Federal Housing Finance Agency (“FHFA”), in its capacity as conservator of Fannie Mae and Freddie Mac, filed an objection on August 30, 2011. Both seek further information regarding the proposed settlement in order to determine whether or not the settlement is fair. Additional objections are unlikely as August 30, 2011 was the deadline to intervene in the action. FHFA Objection. FDIC Objection.
Walnut Place Investors Remove Proceeding Concerning Bank of America’s Proposed $8.5 Billion Settlement to Federal Court
On August 26, 2011, Walnut Place Investors removed Bank of America’s proposed $8.5 billion settlement with holders of Countrywide Financial Corporation’s RMBS from New York State Court to the United States District Court for the Southern District of New York. The attorneys for Walnut Place Investors, Grais & Ellsworth, noted that the case is subject to federal jurisdiction as a mass action under the Class Action Fairness Act (“CAFA”). In a letter addressed to counsel for Bank of New York Mellon, Grais & Ellsworth argued that removal should not create any additional delay in ultimately settling the action. Grais & Ellsworth also represents several other parties that intervened in the proposed settlement including several Federal Home Loan Banks, pension funds, and private equity firms. Letter and Notice of Removal.
U.S. Bank Sues Bank of America Over $1.75 Billion Countrywide RMBS Deal
On August 29, 2011, U.S. Bank National Association (“U.S. Bank”) filed a lawsuit against Bank of America and certain affiliates, as successor to Countrywide Financial Corp., in the Supreme Court for the State of New York. U.S. Bank, as Trustee of the RMBS transaction, filed this suit at the direction of trust investors, in order to force Bank of America to repurchase each of the securitized loans underlying the trust. The complaint alleges that Countrywide failed to adhere to its own underwriting guidelines and thus misrepresented the quality of the loans underlying the trust. The complaint further alleges that it notified Bank of America of the need to cure or repurchase the loans beginning on May 2, 2011. U.S. Bank alleges that to date Bank of America has neither repurchased any loans nor provided an explanation for the failure to do so. U.S. Bank brings claims for breach of contract and a declaratory judgment that Bank of America is required to repurchase all of the allegedly defective loans in the mortgage pool. Complaint.
Rating Agency Developments
On August 31, S&P refined its methodology for rating bond anticipation notes. S&P Release.
On August 29, DBRS released its methodology for rating European covered bonds. DBRS Release.
Note: Free registration required for S&P releases.
FINRA Amendments to Trade Reporting Requirements
On August 29, the SEC approved amendments to FINRA Rules 6282, 6380A, 6380B, and 6622 that: (i) clarify the existing exception for transactions that are part of a distribution of securities by incorporating the definition of “distribution” as set forth under SEC Regulation M; (ii) impose notice requirements on members relying on the exception for transactions that are part of an unregistered secondary distribution; and (iii) exclude from the trade reporting requirements any transfer of securities for the sole purpose of creating or redeeming an instrument that evidences ownership of or otherwise tracks the underlying securities transferred. A revised Regulation M Trading Notification Form will be available as of November 1. FINRA Release. FINRA Amendments.
Fed Proposed Rule for Securities Holding Companies
On August 31, the Fed requested comment on a proposed rule for securities holding companies electing to be supervised by the Fed. A securities holding company is a nonbank company that owns at least one registered broker or dealer, and it may seek Fed supervision to meet requirements of a foreign regulator that it be subject to US supervision. Comments must be submitted by October 11. Fed Release.
Ginnie Mae Updated Loan Repurchase Policy
On August 26, Ginnie Mae expanded the parameters for loans eligible for repurchase from Ginnie Mae MBS to accommodate the recently expanded FHA trial payment requirement for non-HAMP modified loans. Under the new policy, if a trial period is required, any modified loan may be repurchased after successfully completing a three-month trial payment period. Ginnie Mae Release.
SEC Seeks Comment on Use of Derivatives by Mutual Funds
On August 31, the SEC requested comments on issues raised by the use of derivatives by mutual funds and other investment companies regulated under the Investment Company Act, including: (i) how different types of funds use derivatives; (ii) how to measure the amount of leverage a fund incurs when investing in a derivative; (iii) how a fund should value a derivative for diversification purposes; (iv) how investing in a derivative from a broker-dealer differs from investing in the broker-dealer’s stocks or bonds; (v) how funds determine the industries to which they may be exposed through a derivative; and (vi) whether the SEC should issue guidance on how funds should value derivatives. Comments must be submitted within 60 days after publication in the Federal Register. SEC Release.
SEC ANPR on Rule 3a-7 and Concept Release on 3(c)(5)(C)
On August 31, the SEC issued an advance notice of proposed rulemaking on possible amendments to Rule 3a-7 of the Investment Company Act relating to the treatment of ABS issuers. The SEC also issued a concept release seeking comment on interpretations of Section 3(c)(5)(C) of the Investment Company Act that is used by some companies (such as REITs) in connection with the acquisition of mortgages and mortgage-related instruments. Comments on both the ANPR and the concept release must be submitted within 60 days after publication in the Federal Register. SEC Release. 3a-7 ANPR. 3(c)(5)(C) Concept Release.