Ambac Assurance Corporation

Nearly All Claims Against U.S. Bank Dismissed in Ambac RMBS Trustee Suit

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On July 16, Judge Schofield in the United States District Court for the Southern District of New York dismissed four out of five claims in a suit filed by Ambac Assurance Corp. (Ambac) against U.S. Bank National Association (U.S. Bank), challenging the Bank’s actions as trustee for a Harborview Mortgage Loan Trust. Ambac insured certain certificateholders against low cashflow from the Trust, which was backed by Countrywide-originated mortgages. In August 2011, U.S. Bank filed suit in New York state court against Countrywide and Bank of America, as its successor, alleging failure to comply with representations and warranties. When U.S. Bank agreed to stay the state suit after Countrywide proposed a $56.96 million settlement, Ambac sued U.S. Bank in the S.D.N.Y. to enjoin the settlement, alleging that the Bank breached its obligations to trust beneficiaries by accepting a low settlement amount. In March 2017, U.S. Bank initiated a trust instruction proceeding (TIP) in Minnesota to address its claims against Countrywide; meanwhile, Judge Stein in the S.D.N.Y. found in the Ambac-led suit that, because of the ongoing TIP, U.S. Bank had not yet breached its duties, and therefore Ambac’s claims were not yet ripe. On June 1, 2018, U.S. Bank disclosed its $94 million settlement with Countrywide, conditioned on approval by the Minnesota court.

In the case before Judge Schofield, Ambac alleged that U.S. Bank accepted an unreasonably low settlement, that it improperly released other lucrative claims, and that by agreeing to stay the New York state court action and bringing the TIP, U.S. Bank had wasted trust funds, harming trust beneficiaries. Judge Schofield dismissed four of Ambac’s five claims based on these facts, finding that any alleged injury was hypothetical and far too speculative, and that Ambac had not adequately alleged that U.S. Bank taking different actions would have resulted in a more favorable settlement or negotiation position. She also rejected Ambac’s counts for declaratory judgment, because such a finding would serve no useful purpose and would not resolve all of the outstanding cases. Judge Schofield let Ambac’s breach of contract claim continue, finding that Ambac sufficiently alleged that U.S. Bank’s improper accounting of recoveries under the Pooling and Servicing Agreement harmed Ambac, because it affected the amount and timing of the insurance payments that it made. Opinion and Order.

Ambac Sues Countrywide For Alleged Fraud in Connection with $1.7 Billion in RMBS

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On December 27, Ambac Assurance Corporation filed a complaint against several Countrywide entities and Bank of America Corporation in New York state court, seeking to recover at least $600 million in damages in connection with claims payments Ambac allegedly made under insurance policies it issued on eight RMBS trusts. Ambac alleges that between 2005 and 2007, Countrywide made false and misleading statements at meetings with Ambac and in prospectus supplements and loan tapes issued in connection with the trusts that induced Ambac to issue its insurance policies. Ambac asserts a cause of action for fraudulent inducement against the Countrywide entities and a cause of action for successor liability against Bank of America.  Complaint.

Ambac’s RMBS Claims Against EMC and JPMorgan Dismissed in Part

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On June 13, Justice Charles E. Ramos of the Supreme Court of the State of New York dismissed in part an action brought by Ambac Assurance Corp. (Ambac) against EMC Mortgage and JPMorgan Chase & Co.  Ambac’s case relates to seven securitizations that it wrapped in 2006.  Justice Ramos dismissed Ambac’s claims for breach of contract, holding that Ambac did not have standing to enforce the “sole remedy” of loan repurchase provided for by the transaction documents.  Justice Ramos denied defendants’ motion to dismiss Ambac’s fraud claim, concluding that there are factual issues as to whether Ambac justifiably relied on the alleged misrepresentations.  Decision.

Ambac Expands Its Review of Mortgages Underlying Insured RMBS

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In an 8-K filed with the SEC on November 18, 2010, Ambac Assurance Corporation announced that it is conducting a review of the mortgage loans underlying a dozen Ambac-insured RMBS, in addition to 17 RMBS as to which it already has initiated litigation.  Ambac stated that it intends to perform what it describes as forensic analysis of the loan origination files and processes and a “re-underwriting” of the loans to determine whether there were breaches of the representations and warranties made at the time the securities were issued.  Ambac also stated that it has either sought or intends to seek the repurchase of certain loans underlying the RMBS due to claimed breaches of representations and warranties.  Form 8-K.