On March 19, the SEC issued a Risk Alert on compliance measures to help broker-dealers fulfill their due-diligence duties when underwriting offerings of municipal securities. The SEC also issued an Investor Bulletin to help educate investors about municipal bonds. Risk Alert. Investor Bulletin. SEC Release.
Month: March 2012
Rating Agency Developments
On March 14, S&P revised its criteria for using third-party due diligence results to assess U.S. residential loan types, including prime, Alt-A, HELOC and subprime. Changes from the previous criteria include (i) provision for modified sampling for flow originations; (ii) provision for accepting data in the ASF file format; (iii) removal of the potential link between an RMBS rating and the rating of the representations and warranties provider, as well as the resulting impact on due diligence sampling; and (iv) clarification regarding the materiality of regulatory compliance findings. S&P Report.
On March 14, S&P revised representations and warranties criteria for U.S. RMBS. S&P Report.
On March 13, S&P revised its default and correlation parameters for sovereign debt assets in CDOs. S&P Report.
On March 13, S&P released its methodology for CDOs and pooled TOBs backed by U.S. municipal debt. S&P Report.
On March 13, Fitch published an exposure draft on revised criteria for counterparty risk in covered bond programmes. Fitch Exposure Draft.
On March 12, Fitch published an exposure draft of its criteria for analyzing counterparty risk in structured finance transactions. Feedback is requested by April 13. Fitch Release. Fitch Exposure Draft.
On March 12, S&P released its methodology for U.S. federal future flow securitizations. S&P Release.
On March 12, S&P requested comment by April 12 on proposed criteria for evaluating enterprises’ management and governance. S&P Release.
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HSBC Agrees to Settle Potential NCUA Claims for $5.25 Million
On March 12, 2012, the National Credit Union Administration (“NCUA”) announced that it reached a settlement with HSBC concerning potential claims arising out of HSBC’s sale of RMBS to five failed credit unions. HSBC agreed to pay $5.25 million, and admitted no fault or liability in connection with the settlement. This is the third pre-litigation settlement that NCUA has reached in connection with the potential RMBS claims of failed credit unions. Press Release.
Allstate Suit Against Citigroup Remanded to State Court
On March 13, 2012, Judge Richard J. Sullivan of the Southern District of New York remanded a $200 million RMBS suit against Citigroup to state court. Citigroup asserted federal jurisdiction under the Edge Act, and under the doctrine of “related to” bankruptcy. Judge Sullivan rejected both arguments. With respect to the Edge Act, Judge Sullivan concluded that no jurisdiction existed because the one federally-chartered entity defendant was not a party to the one securitization that contained mortgage loans secured by overseas properties. With respect to the issue of related to bankruptcy jurisdiction, the Court found that defendants could not establish any impact that the outcome of this case could have on the bankruptcy proceedings concerning American Home Mortgage Holdings, Inc. (“AHM”), which had originated some of the loans backing the RMBS, particularly because AHM’s reorganization plan already had been approved and defendants failed to establish that their claim in the AHM bankruptcy is not already fully liquidated. Order.
Assured GuarantySues Bear Stearns and JPMorgan
On March 15, 2012, Assured Guaranty Corp. filed a complaint in New York state court against Bear Stearns, its affiliate, EMC Mortgage LLC, and its successor, JPMorgan, alleging that Bear Stearns misrepresented the risk of RMBS and fraudulently induced Plaintiff to guarantee those RMBS. The complaint relies on alleged statements of confidential informants, including former employees of Bear Stearns, GreenPoint Mortgage Funding, Inc., and Watterson Prime LLC. Plaintiff alleges that the securities involved in the transactions at issue have experienced losses of more than $75 million, and that Plaintiff has paid unreimbursed claims of more than $43 million. Plaintiff asserts claims for fraudulent inducement, various breaches of contract, and for indemnification, claims payments, costs, and fees. Complaint.
Capital One, Chevy Chase, and Credit Suisse Sued over $168.6 Million in RMBS
On March 8, 2012, a group of plaintiffs led by German bank Landesbank Baden-Wuerttemberg filed a summons with notice in New York state court against Capital One Financial Corp., Chevy Chase Funding LLC, and Credit Suisse Securities (USA) LLC. The plaintiffs allege that the defendants made material misrepresentations and omissions in the offering materials for $168.6 million worth of RMBS allegedly purchased by plaintiffs. Specifically, plaintiffs claim that the materials contained misrepresentations concerning the legal validity of the assignments of the underlying mortgage loans to trusts and the legal validity of the trusts to receive interest and principal payments on the loans. Plaintiffs assert claims for common-law fraud, fraudulent inducement, negligent misrepresentation, aiding and abetting fraud, declaratory judgment, rescission, restitution, and mutual mistake. Plaintiffs are seeking at least $168.6 million in damages plus accrued interest and punitive damages. Summons.
Second Circuit Grants SEC’s Motion for Stay and Sharply Criticizes District Court’s Rejection of Settlement in Case Against Citigroup
On Thursday, March 15, the United States Court of Appeals for the Second Circuit issued a per curiam stay order strongly criticizing Judge Jed S. Rakoff’s order rejecting a proposed consent judgment between the Securities and Exchange Commission and Citigroup Global Markets Inc. The Second Circuit granted the Commission’s motion for a stay of the district court proceedings in SEC v. Citigroup Global Markets Inc., No. 11 Civ. 7387 (S.D.N.Y.), pending resolution of the appeals. Click here to read more.
Mortgage-Backed Securities Division of FICC to be Central Clearinghouse for MBS
On March 9, the SEC approved an amended proposed rule change, allowing the Mortgage-Backed Securities Division of the Fixed Income Clearing Corporation to provide guaranteed settlement and central counterparty services. SEC Release.
MHA Program Supplemental Directive
On March 9, Supplemental Directive 12-02 was issued, extending the deadline for the MHA Program to the end of 2013 and expanding the population of homeowners that may be eligible for HAMP. On March 12, a correction to the Supplemental Directive was issued to clarify that Home Affordable Unemployment Program forbearance plans are not eligible for servicer incentive compensation. Supplemental Directive. Supplemental Directive Correction.
Fed Results of Stress Tests
On March 13, the Fed announced summary results of stress tests under the Comprehensive Capital and Analysis Review, a supervisory assessment by the Fed of the capital planning processes and capital adequacy of 19 large, complex bank holding companies. Fed Release. Methodology and Results.