On July 16, Judge Lewis A. Kaplan of U.S. District Court for the Southern District of New York remanded suits brought by Bayerische Landesbank against Bear Stearns and Merrill Lynch to the Supreme Court of the State of New York, where they were originally filed. The lawsuits allege that Defendants knowingly made misrepresentations in RMBS offering materials concerning the underwriting standards used in connection with the underlying mortgage loans. Defendants sought removal to federal court on the ground that the cases were related to bankruptcy proceedings of the originators of some of the underlying mortgages. Judge Kaplan’s remand order indicated that a further written order may be forthcoming. Order. Notice of Removal.
Month: July 2012
Bank of America Settles Syncora RMBS Action for $375 Million
On July 17, Bank of America agreed to settle a case brought in New York state court by insurer Syncora Guarantee for $375 million. The settlement also includes a transfer of assets from Syncora to Bank of America subsidiaries and a corresponding transfer of preferred shares, surplus notes, and other securities from Bank of America subsidiaries to Syncora. Syncora filed suit against Bank of America in 2009, alleging that Countrywide Financial misrepresented the quality of mortgages underlying securities that Syncora insured. Press Release.
Court Denies Morgan Stanley’s Motion to Dismiss RMBS Class Action
On July 16, Judge Laura Swain of U.S. District Court for the Southern District of New York denied Morgan Stanley’s motion to dismiss a class action suit that alleges misrepresentations and omissions in the offering documents for numerous mortgage-backed securities. In its motion, Morgan Stanley argued that the claims were time-barred under the one-year statute of limitations for violations of Section 11 and Section 12(a)(2) of the 1933 Securities Act because, among other reasons, numerous news reports had been published more than one year before the complaint was filed that put Plaintiffs on inquiry notice of their claims. Judge Swain held that the statute of limitations begins running only when a plaintiff could have pled claims with sufficient particularity to state a facially plausible claim. In this context, she held that the earliest that could have occurred was when the securities at issue were downgraded to below investment-grade. She further held that while the news reports cited by Morgan Stanley painted a vivid picture of a distressed MBS industry, none of the reports referred to the entities involved in the origination or securitization of the loans backing Plaintiffs’ investments and therefore they did not provide Plaintiffs with sufficient information to state a facially plausible claim. Order.
Rating Agency Developments
On July 18, Moody’s updated its methodology for Public Sector Pool Financings. Moody’s Methodology.
On July 17, DBRS updated its methodology for Asset Management Companies. DBRS Methodology.
Note: Free registration is required for rating agency releases and reports.
HUD Accepting Applications to Purchase Troubled Mortgages
On July 13, HUD announced that applications may be submitted for the Distressed Asset Stabilization Program to purchase pools of severely distressed loans formerly insured by the FHA. Approximately 3,500 loans will be sold in four metropolitan areas: Chicago, IL; Newark, NJ; Phoenix, AZ; and Tampa, FL. HUD Release.
Guidance to Servicers for Making Home Affordable
On July 13, Treasury issued a supplemental directive to provide guidance to servicers for compliance with the requirements of the Dodd-Frank Act and Making Home Affordable requirements related to borrower identity and owner-occupancy for non-GSE mortgages. Guidance.
SEC Final Report on Global Accounting Standards
On July 13, the SEC‘s Office of Chief Accountant published its final staff report on the Work Plan related to the potential adoption of global accounting standards. The Work Plan was published in February 2010 to consider factors relevant to a determination as to whether, when, and how the current financial reporting system for U.S. issuers should transition to a system incorporating International Financial Reporting Standards (IFRS). The SEC currently has no timeframe to decide whether to switch to IFRS, so it’s uncertain when that decision will be made. SEC Release. SEC Report.
CFTC Swap No-Action Relief for Registration and Compliance
On July 13, the CFTC announced time-limited no-action relief for commodity pool operators (CPOs) and commodity trading advisors (CTAs) who have been exempt or excluded from registration but, because of recent amendments to Commission Regulations 4.13 and 4.5, now need to register and satisfy compliance obligations. Under the relief, the CFTC will not take will not take enforcement actions against CPOs or CTAs for failure to register until December 31, subject to satisfaction of requirements including filing of a notice. CFTC Release.
CFTC Approves Rules for Funds Held by Futures Commissions Merchants
On July 13, the CFTC approved rules submitted by the National Futures Association for customer funds held by futures commissions merchants. The new rules require futures commissions merchants to strengthen controls over the treatment and monitoring of funds held for customers trading on U.S. contract markets and for funds held for foreign futures and foreign options customers trading on foreign contract markets. CFTC Release.
SEC Guidance on Ratings and Standards of Creditworthiness
On July 17, the SEC published interpretive guidance for the definitions of “mortgage related security” and “small business related security” of the Securities Exchange Act of 1934 in light of Section 939(e) of the Dodd-Frank Act which removed provisions in these definitions which referred to credit ratings and inserted new text that provided that, to satisfy the definitions, a security must meet standards of creditworthiness established by the SEC. The SEC is providing a transitional interpretation that will be applicable from July 20 until final rules establishing new standards become effective. Under the transitional interpretation, the standard of creditworthiness for “mortgage related security” continues to mean a security that is rated one of the two highest rating categories by at least one NRSRO and, for “small business related security”, one of the four highest rating categories by at least one NRSRO. The SEC is also seeking comments, due by 30 days after publication in the Federal Register, on potential standards of creditworthiness. SEC Guidance.