On November 17, 2014, Justice Shirley Werner Kornreich of the Supreme Court for the State of New York, New York County approved the stipulation of voluntary discontinuance between Assured Guaranty Municipal Corp., DB Structured Products, Inc., and ACE Securities Corp. DB Structured Products’s third-party claim against Greenpoint Mortgage Funding, Inc. was also voluntarily discontinued. Monoline insurer Assured filed the action in 2010, alleging breaches of representations and warranties in a 2006 RMBS transaction. Stipulation of Voluntary Discontinuance.
Assured Guaranty Municipal Corp
RBS Settles MBS Claims with Assured
On August 14, RBS Securities reached a deal with Assured Guaranty Municipal Corp. to settle a lawsuit alleging misrepresentations concerning the collateral underlying a US$291 million securitization. The complaint alleged that Assured anticipated paying US$100 million in claims pursuant to the monoline insurance policy it issued in connection with the securitization. In light of the settlement, Judge Ronnie Abrams of the United States District Court for the Southern District of New York dismissed Assured’s suit with prejudice, with the stipulation that Assured may restore the suit within 30 days if the settlement is not finalized. The amount and terms of the settlement were not disclosed. Order.
Assured and Flagstar Settle RMBS Litigation for $105 Million
On June 21, Flagstar Bancorp, Inc. announced that it reached a settlement in a lawsuit brought by Assured Guaranty Municipal Corp. arising out of nearly $1 billion in Flagstar-sponsored RMBS that Assured insured. The settlement comes in the wake of Assured’s trial victory in February 2013, which Flagstar had appealed. Under the terms of the settlement, Flagstar will pay Assured $105 million and will assume responsibility for the assets in the two relevant securitizations, including any future claims associated with the trusts. Press Release.
Monoline Insurer Assured Sues RBS in Connection with $1.15 Billion RMBS Securitization
On March 26, Assured Guaranty Municipal Corp. sued RBS Securities in the United States District Court for the Southern District of New York for fraud in connection with a financial guaranty insurance policy that Assured provided to RBS as part of a $1.15 billion RMBS securitization. Assured alleges that it was induced to insure the certificates by RBS’s alleged material misrepresentations and omissions, including the loan-to-value and borrower-to-income ratios of underlying mortgages, owner occupancy status and adherence to originator underwriting standards. Assured alleges that it expects to pay $100 million in claims by investors in the securitization. Assured brings claims for common law fraud, aiding and abetting common law fraud and civil conspiracy to defraud, all under New York law. Complaint.
Federal Court Rules that Insurer May Prevail on its Representation and Warranty Claims Without Proving that the Breaches Caused Loans to Default
On September 25, Judge Jed S. Rakoff of the Southern District of New York issued a written opinion denying summary judgment in Assured Guaranty Municipal Corp.’s contract dispute with Flagstar Bank FSB over its insurance policies on nearly $1 billion in mortgage-backed securities backed by home equity loans. Assured initiated this action in April 2011, alleging that Flagstar breached representations and warranties concerning the underwriting guidelines used to originate the mortgages, the credit characteristics of the loans, and the absence of negligence or fraud in the origination process. Assured alleges that many of the loans have defaulted, resulting in $82.4 million in claims paid to date. In denying Flagstar’s summary judgment motion, Judge Rakoff found that Assured need not demonstrate loss causation – that is, that the representation and warranty breach caused the loan to default and caused Assured to suffer damages – but rather that Assured could prevail if it proves that the representation and warranty breach materially increased the risk of loss to Assured. Trial in this matter is scheduled for October 9. Judge Rakoff’s ruling is similar to that of Judge Paul Crotty in Syncora Guarantee Inc. v. EMC Mortgage Corp., a decision covered in the June 25 issue of the Week in Review. Order.