American Home Mortgage

Third Circuit Finds Discounted Cash Flow Valuation of Contested Portfolio “Commercially Reasonable”

On February 16, 2011, the Third Circuit affirmed a Delaware bankruptcy court’s order determining the value of mortgage loans in the context of a 2006 repurchase agreement. Buyer Calyon argued that the mortgage loan portfolio sold to it by American Home Mortgage had a market price of only $670 million, as compared to its $1.15 billion contractual repurchase price, and that American Home Mortgage was required to pay Calyon the $480 million difference under a repo agreement. American Home Mortgage on the other hand contended that the portfolio was worth more than the $1.15 billion purchase price. In a case of first impression, the Third Circuit agreed with the bankruptcy court that American Home Mortgage’s discounted cash flow valuation was a “commercially reasonable determinant of value” as required under the Bankruptcy Code and that consequently there were no damages. Decision.

Los Angeles Federal Court Has Jurisdiction Over RMBS Suit

On December 29, 2010, the Honorable Mariana R. Pfaelzer denied a motion by Stichting Pensioenfonds ABP (“Plaintiff”) to remand its claims against Countrywide and others to state court. Judge Pfaelzer concluded that the case was sufficiently related to a bankruptcy case to confer federal jurisdiction in light of contractual indemnification obligations of a bankrupt originator, American Home Mortgage Corp., to Countrywide. The Court also concluded that there were no equitable grounds meriting remand. Decision.