On December 19, 2012, Judge Denise Cote of the federal district court for the Southern District of New York decided motions to dismiss FHFA’s action against Ally Financial and underwriters of Residential Capital securities. The court dismissed claims of owner-occupancy and LTV-ratio fraud, Virginia Securities Act claims for certificates purchased before September 6, 2006, and Virginia Securities Act and Section 12(a)(2) claims with respect to certificates purchased from parties other than defendants. The court denied the remaining aspects of the motions to dismiss, including defendants’ requests that the court strike the demand for punitive damages, that the claims against Ally Financial Inc. be dismissed based on lack of control of the alleged primary violators, and for dismissal of the allegations against underwriter defendants that are not based on owner-occupancy and LTV fraud. Decision.
Ally Financial
FHFA Can Pursue Claims Against Non-Debtor Affiliates of Residential Capital
On July 17, Judge Denise Cote of the United States District Court for the Southern District of New York ruled that the Federal Housing Finance Agency (“FHFA”) can pursue certain RMBS-related claims against affiliates of Residential Capital LLC (“ResCap”). ResCap, which has filed for Chapter 11 bankruptcy, brought a motion before Judge Cote to enjoin the FHFA from pursuing claims against ResCap’s non-debtor affiliates or, in the alternative, to extend the automatic stay protection afforded by its Chapter 11 status. Judge Cote denied ResCap’s motion. The underlying FHFA complaint alleges that defendants (including Ally Financial, Ally Securities, and GMAC Mortgage) made false or misleading statements or omissions in the offering materials for $6 billion worth of RMBS. Decision.
Insurer Seeks Rescission and Damages in Connection with Coverage for $3.8 Billion in RMBS
On November 29, 2011, the Financial Guaranty Insurance Co. (“FGIC”) filed three lawsuits in New York state court against the mortgage divisions of Ally Financial. FGIC alleged that GMAC and the Residential Funding Company misrepresented to FGIC the quality of loans underlying RMBS valued at $3.8 billion in order to obtain insurance policies from FGIC that were purportedly necessary for the RMBS to be given a AAA credit rating. FGIC’s insurance policies guaranteed principal and interest payment on the securities at issue. FGIC asserts a number of causes of action in each case, including claims for various contractual breaches, fraudulent inducement, and tortious interference. Complaint A. Complaint B. Complaint C.
Fannie, Freddie Agreements with Ally and BofA
On January 3, the FHFA approved agreements between Fannie Mae and Freddie Mac with Ally Financial and Bank of America to resolve claims related to mortgages sold to the GSEs. Each agreement covers a different book of business and has different limitations. The agreements do not address representations and warranties with regard to mortgage servicing or foreclosure processing. For more information, see below. FHFA Release.