On October 31, 2011, Justice Bransten of the Supreme Court for the State of New York denied Bank of America’s (“BofA”) motion to split the successor liability claims from four separate lawsuits pending against the bank and consolidate those claims into a single case. Four monoline insurers that insured Countrywide mortgage-backed securities – MBIA Inc., Syncora Guarantee Inc., Ambac Assurance Corp., and Financial Guaranty Insurance Co. – have sued BofA and Countrywide for fraud and breach of contract. BofA argued that the nearly identical successor liability claims in the four suits should be severed from the individual cases, consolidated, and stayed until after primary liability is decided. Justice Bransten agreed the claims were similar but found severance and consolidation would prejudice MBIA, the first to file suit, by unduly delaying its claims while the other insurers conduct discovery. Decision.
Month: November 2011
Government Sues Allied Home Mortgage For Fraud Under the False Claims Act
On November 1, 2011, the United States filed suit in the Southern District of New York against Allied Home Mortgage, a mortgage lending company, for allegedly defrauding the government into insuring its now-defaulted loans. The complaint alleges that Allied and CEO Jim Hodge violated the False Claims Act (“FCA”) by making misrepresentations to the Department of Housing and Urban Development to ensure the company could continue originating mortgages insured by the Federal Housing Administration (“FHA”). The complaint alleges that Allied submitted loans to the FHA originated out of “shadow branches” it did not disclose to the government and then illegally routed those mortgages through HUD-certified mortgage branches to avoid detection by the government. The government also contends that Allied failed to implement sufficient quality control measures to ensure underwriting standards were being met. The government seeks a permanent injunction and treble damages. Complaint.
Investor Group Sues UBS for Mortgage-Backed Securities Losses
On November 2, 2011, Capital Ventures, an investor group, sued UBS in Massachusetts federal court, claiming that UBS Securities misled it into purchasing securities backed by faulty mortgage loans by misrepresenting the quality of those loans in the offering materials. Capital Ventures alleges it purchased more than $109 million worth of mortgage-backed securities from UBS over six separate transactions and that a significant portion of that value has been lost as the mortgages underlying the securities have defaulted. Capital Ventures alleges claims under the Massachusetts Uniform Securities Act. Complaint.
FINRA Rule Amendment on Protection of Documents from Discovery
On November 2, the SEC approved an amendment to FINRA Rule 9251 that explicitly protects from discovery during FINRA proceedings those documents that federal law prohibits FINRA from disclosing. The amended rule text will be effective December 2. FINRA Notice and Amended Rule.
CFTC Adoption of Final Form PF
On October 31, pursuant to Sections 404 and 406 of the Dodd-Frank Act, the CFTC adopted a new rule requiring certain advisers to private funds that are dually registered with the CFTC and the SEC to report information to the SEC on a new Form PF for use by the Financial Stability Oversight Council to monitor risks to the U.S. financial system. The SEC approved the joint rule on October 26. Most private fund advisers will be required to begin filing Form PF following the end of their first fiscal year or fiscal quarter ending on or after December 15, 2012, depending upon the type and amount of AUM. However, certain large reporting advisers will be required to file Form PF following their first fiscal year or fiscal quarter after December 15, 2012. CFTC Release. Final Rule. Form PF.
Rating Agency Developments
On November 2, Moody’s released its approach to rating U.S. credit tenant lease financings. Moody’s Methodology.
On November 1, S&P updated its methodology for identifying, categorizing, and rating bank hybrid capital. S&P Release.
On October 28, S&P revised its assumptions for U.S. transactions backed by tobacco settlements. S&P Release.
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HUD Rule to Improve HOME Program
On November 4, HUD proposed a new rule under its Home Investment Partnerships Program (“HOME”). The proposed regulatory requirements would, among other things, require state and local governments to: (i) adopt policies and procedures to improve project oversight; (ii) develop a system for assessing the relative risk of projects, and more closely monitor HOME-funded sub-recipients; and (iii) assess the capacity of developers and the long-term viability of projects prior to committing HOME funds. HUD Release.
MSRB Amendments to Underwriter Fair Dealing Proposal
On November 3, the MSRB filed amendments to its proposal regarding the duties of underwriters of municipal securities to state and local governments. The amendments would enhance certain disclosure requirements for underwriters as well as clarify the risk disclosure requirements of the proposal. Comments on the proposal should be submitted to the SEC. MSRB Release. MSRB Amendments.
Hearing on the Private Mortgage Market Investment Act
On November 3, the House Subcommittee on Capital Markets, Insurance, and Government-Sponsored Enterprises held a hearing on the proposed Private Mortgage Market Investment Act. Hearing Testimony.
OCC Issuance on Revision of Appeals Procedures
On November 1, pursuant to Section 316 of the Dodd-Frank Act, the OCC released an issuance revising the procedures for national banks to appeal agency decisions and actions to include federal savings associations. Issuance.