On April 3, S&P released its methodology for CDOs and pooled TOBs backed by U.S. municipal debt. S&P Release.
On April 2, Moody’s released its approach to rating securities backed by FFELP student loans. Moody’s Report.
On April 2, Fitch updated its Ratings Definitions, removing the definition of Individual Rating, and adding Limitations of National ratings. Fitch Release.
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On April 3, 2012, Judge William H. Pauley of the U.S. District Court for the Southern District of New York dismissed with prejudice nearly all claims against Bank of New York Mellon, as trustee, by four plaintiff pension funds in a putative class action relating to 530 Countrywide RMBS trusts worth $424 billion. Plaintiffs allege that Bank of New York Mellon violated the Trust Indenture Act and breached its contractual and fiduciary duties by failing to remedy the allegedly inadequate servicing of the mortgages underlying the trusts. The court found the plaintiffs lacked standing to bring claims under the Trustee Indenture Act relating to trusts in which they did not actually invest. As a result of the decision, only 26 trusts worth $30 billion remain in the litigation. Decision.
On March 30, 2012, Ambac Assurance Corp. brought claims against J.P. Morgan Chase, EMC Mortgage, and Bear Stearns in the Supreme Court of the State of New York, alleging fraudulent marketing of RMBS by Bear Stearns. Ambac alleges that Bear Stearns, which was acquired by J.P. Morgan, misrepresented the quality of the underlying mortgage loans when obtaining insurance from Ambac on the RMBS. Ambac, which alleges losses of $200 million, brings claims for fraudulent inducement, breach of contract, and successor liability. Complaint.
On March 30, 2012, Judge Laura Taylor Swain of the U.S. District Court for the Southern District of New York dismissed claims based on credit ratings brought by several retirement and pension funds against Bear Stearns & Co., Inc. and related affiliates in connection with the sale of RMBS pass-through certificates. Plaintiff brought claims under Section 11, 12(a)(2) and 15 of the Securities Act of 1933. The court found that plaintiffs failed to plead that the rating agencies disbelieved their ratings, but granted plaintiffs leave to amend to allege Bear Stearns was aware of the inaccuracy of the credit ratings. The court, however, declined to dismiss claims that Bear Stearns made misrepresentations concerning the quality of the underlying loans in its offering documents. It also rejected Bear Stearns’ argument that plaintiffs lacked standing to sue on tranches they did not purchase. Decision.
On March 29, 2012, Dexia filed suit against Merrill Lynch & Co. and related entities in the Supreme Court of the State of New York in connection with $527 million in RMBS it allegedly purchased in fifteen offerings in 2006 and 2007. Dexia alleges that Merrill Lynch made misrepresentations about and ignored the deficiencies in the underwriting standards and appraisal practices used by the originators of the loans underlying the RMBS, as well as that the credit ratings were inflated due to false information allegedly provided to the ratings agencies by Merrill. The causes of action alleged are fraud, aiding and abetting fraud, and negligent misrepresentation. Dexia, which is represented by the same counsel who represent LBW in its suit against Countrywide, seeks unspecified money damages and rescission. Complaint.
On March 29, 2012, German bank Landesbank Baden-Wurttemberg (“LBW”) filed a suit against Countrywide Financial Corp. and related entities in the Supreme Court of the State of New York alleging that Countrywide misrepresented the underwriting standards and appraisals for the loans underlying $455 million of RMBS allegedly purchased by LBW in eleven offerings between 2005 and 2007. LBW further alleges that Countrywide misrepresented information to credit rating agencies resulting in faulty ratings, misrepresented that the issuing trusts possessed good title to the underlying loans, and ignored underwriting deficiencies by other originators whose loans it purchased. LBW alleges claims for fraud, aiding and abetting fraud, negligent misrepresentation, successor and vicarious liability, and violations of Sections 11, 12(a)(2), and 15 of the Securities Act of 1933. LBW seeks unspecified money damages and rescission. Complaint.
On March 28, 2012, investors in Ace Securities Corp. Home Equity Loan Trust, Series 2006-SL2 commenced a derivative lawsuit, purportedly on behalf of the Trust, against HSBC Bank, as trustee, and DB Structured Products, Inc., an affiliate of Deutsche Bank, the loan originator. In a summons with notice filed in the Supreme Court of the State of New York, plaintiffs state that they seek $250 million in damages for breach of repurchase obligations, based on alleged misrepresentations about the quality of the loans in the Trust’s collateral pool and borrowers’ ability to pay. The causes of action are for breach of contract and specific performance. Complaint.
President Obama signed the Jumpstart Our Business Startups Act (the “Act”) into law on April 5. The Act includes many provisions intended to facilitate capital raising and reduce regulatory burdens for certain types of issuers, but does little for the asset-backed securities market, which continues to grapple with the Dodd-Frank Act and related regulations and the looming specter of Reg AB II.
ABS issuers, underwriters and investors, however, will be interested in the sections of the Act that amend the exempt offering provisions of the Securities Act of 1933 (the “Securities Act”) and direct the Securities and Exchange Commission (the “SEC”) to revise regulations to permit general solicitation and advertising in connection with offerings that are exempt from registration under the Securities Act. Click here to read more.
On April 5, the Fed issued a final rule to simplify the administration of reserve requirements and reduce administrative and operational costs for depository institutions and Federal Reserve Banks. Release. Reg D Amendment Final Rule. Reg J Amendment Final Rule.
On April 5, the Fed released a policy statement on the rental of residential other real estate owned properties (OREOs) to remind banking organizations and examiners that Fed regulations and policies permit rentals as part of an orderly disposition strategy and to outline supervisory expectations for residential rental activities. Release. Policy Statement.
