S.D.N.Y. Judge Grants In Part and Denies In Part Bank’s Motion to Dismiss Complaint by Financial Guaranty Insurer

On September 8, 2011, Judge Jed Rakoff of the Southern District of New York released a memorandum in support of his July 7, 2011 Order granting in part and denying in part Flagstar Bank’s motion to dismiss Assured Guaranty Municipal Corp.’s complaint against it arising out of agreements entered into in 2005 and 2006 for Assured to wrap $1 billion worth of securities issued by Flagstar. Judge Rakoff (1) rejected the argument that the insurer’s sole remedy under the agreements was cure or repurchase of the offending loans, (2) held that Assured was entitled only to indemnification for claims brought by third parties, not for claims brought by Assured, (3) found it reasonable to infer that the credit issues Assured allegedly discovered in loans that had been charged-off extended to non-charged off loans, (4) held that Assured’s claims regarding non-charged off loans were ripe even though Assured did not request they be repurchased, and (5) rejected Flagstar’s assertion that any “Transfer Deficiency” remedy had no effective value. Decision.

S.D.N.Y. Trims Assured’s Claims Against Flagstar

On July 7, 2011, Southern District of New York Federal Judge Jed Rakoff partially granted Flagstar Bank’s (“Flagstar”) motion to dismiss claims brought by Assured Guaranty (“Assured”). The Court sustained two claims for breach of contract, but limited Assured’s remedy to Flagstar’s “cure or repurchase” obligations and dismissed two additional claims for reimbursement and indemnification. Assured had alleged that Flagstar misled it about the characteristics of the loans, mortgagors, and the underlying properties and that, when Assured did its own investigation, it found that the majority of the sampled loans violated Flagstar’s underwriting guidelines. The court issued the ruling without a full opinion, which will be issued later. Order

Assured Guaranty Announces Settlement with Bank of America on Reps and Warranties Action Involving 29 RMBS Deals

On April 15, 2011, Bank of America and Assured Guaranty Ltd. (“Assured”) announced that they had reached a settlement regarding the Bank’s liabilities with respect to 29 RMBS transactions insured by Assured Guaranty, including liabilities relating to Assured’s allegations of breaches of representations and warranties and historical loan servicing issues. Assured reports that Bank of America and its Countrywide subsidiaries agreed to pay Assured $1.1 billion and entered into a reinsurance arrangement that will reimburse Assured for 80% of all paid losses on the 21 of the 29 offerings that were first lien RMBS transactions until aggregate collateral losses in those transactions exceed $6.6 billion. The 29 RMBS offerings in the settlement cover all securitizations insured by Assured that were sponsored by Bank of America and Countrywide and certain additional securitizations backed by specific concentrations of Countrywide-originated loans. Assured 8k. Bank of America Release.