Countrywide

New York Court of Appeals Requires Ambac to Follow Repurchase Protocol and Prove Elements of Fraud Claim

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On June 27, 2018, the New York Court of Appeals ruled that Ambac Assurance Corporation (“Ambac“) could not recover the full $2.2 billion in damages it sought in the form of claim payouts on $25 billion worth of securitized mortgages from Countrywide Home Loans, Inc. (“Countrywide“). Ambac, a monoline financial guaranty insurer, had agreed to insure payments of principal and interest owed to holders of 17 RMBS securitizations that had been sponsored by Countrywide. Ambac sued Countrywide, alleging claims for fraudulent inducement and breach of contractual representations and warranties. At summary judgment, Ambac contended that it was not required to prove justifiable reliance or loss causation for the fraudulent inducement claim, and that the contract’s repurchase protocol—specified to be the sole remedy for breaches of representations and warranties—did not govern its contractual claims. READ MORE →

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.

BofA and Countrywide Settle RMBS Lawsuit with National Integrity

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On August 28, in light of a settlement reached between the parties, Judge Mariana R. Pfaelzer of the United States District Court for the Central District of California dismissed a lawsuit brought by National Integrity Life Insurance Company against various Bank of America and Countrywide entities in connection with more than US$447 million in RMBS.  The complaint alleged claims under the Securities Act of 1933, the Ohio Securities Act, the Ohio Corrupt Activities Act, and various common law causes of action arising out of alleged misstatements made in the RMBS offering documents.  The amount and terms of the settlement were not disclosed.  Order.

Motion to Dismiss Granted in Part in $1.75B Repurchase Suit Against BofA, Countrywide

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On May 29, Justice Eileen Bransten in the Supreme Court of the State of New York partially granted a motion to dismiss in a case by U.S Bank against Bank of America and Countrywide seeking the repurchase of 4,484 mortgages securitized in a $1.75 billion RMBS trust.  Justice Bransten held that U.S. Bank could not, under the relevant contracts, seek repurchase of all loans in the trust on the basis of alleged “pervasive breaches” of representations and warranties related to mortgage loans, and therefore dismissed the portion of U.S. Bank’s complaint seeking complete repurchase of all loans.  Justice Bransten, however, held that U.S. Bank’s claim for repurchase of 495 individual loans for which U.S. Bank had provided notice of breach to Countrywide, and that Countrywide had not yet repurchased, was adequately pled and thus could proceed.  Order.

Federal Court Dismisses United States Action Against Countrywide In Part

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On May 8, Judge Jed Rakoff of the United States District Court for the Southern District of New York dismissed claims by the United States for damages and civil penalties under the False Claims Act against Countrywide and Bank of America.  The court held that the government could proceed with its claims for violations of the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) of 1989.  FIRREA permits the government to recover civil penalties for fraudulent activities that “affect” federally insured financial institutions.  The government alleged that Countrywide’s mortgage origination business had defrauded Fannie Mae and Freddie Mac.  The court noted it would explain its reasoning at a later date.  Order.  Amended Complaint.

Court Issues Summary Judgment Ruling in MBIA’s RMBS Action Against Countrywide

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On April 29, Justice Eileen Bransten of the New York State Supreme Court issued an opinion granting in part and denying in part competing motions for summary judgment filed by MBIA and Countrywide in connection with tort and contract claims MBIA asserted concerning its insurance policies wrapping certain Countrywide RMBS.  With respect to Countrywide’s motion, the Court i) granted Countrywide’s motion to dismiss MBIA’s claim for indemnification because the contract did not unequivocally provide MBIA with a right to indemnification for claims between the parties; (ii) denied the motion as to MBIA’s fraudulent inducement claim because of  Countrywide’s failure to demonstrate that justifiable reliance is a required element of the claim under either statutory or common law; (iii) denied the motion as to claims for breach of the insurance agreements, holding that the language of the insurance agreement at issue did not limit MBIA to a “sole remedy” of repurchase and that MBIA had presented sufficient evidence to raise a triable issue that Countrywide was on notice of breaches throughout the collateral pools backing the RMBS at issue; (iv) ruled that MBIA had created issues of fact as to whether Countrywide committed servicing breaches with gross negligence; and (v) found triable issues of fact exist with respect to MBIA’s request for punitive damages in connection with its fraudulent inducement claim.

With respect to MBIA’s motion for summary judgment, the Court i) ruled that loans need not be in default in order to be eligible for repurchase; ii) found factual issues as to whether loans Countrywide classified as “severely unsatisfactory” breached Countrywide’s representations; iii) rejected MBIA’s argument that Countrywide’s refusal to repurchase loans constituted an anticipatory repudiation of its repurchase obligations; and iv) found that Countrywide had failed to raise triable fact issues on a loan-by-loan basis concerning  the falsity of representations including as to appraisals, defaults, the accuracy of the mortgage loan schedule, and the contents of mortgage loan files.  The Court ruled that whether those breaches were sufficiently material and adverse to trigger Countrywide’s repurchase obligation was a question for trial.  Because that issue remains for trial, the Court declined MBIA’s request to extrapolate breach findings within a loan sample to the entire pool of loans at issue.  Order.

Federal Judge Dismisses FDIC’s Securities Fraud Claims Against Countrywide

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On April 8, U.S. District Judge Mariana R. Pfaelzer of the Central District of California dismissed the FDIC’s suit against Countrywide.  FDIC, as the receiver for Colonial Bank, filed suit against Countrywide and Bank of America as its successor for violations of the 1933 Securities Act.  FDIC alleged Countrywide made false statements in offering documents in connection with the issuance of residential mortgage-backed securities in violation of Sections 11 and 15 of the Act.  Judge Pfaelzer held that each claim was barred by the statute of limitations of one year from when the plaintiff discovered, or a reasonably diligently investor would have discovered, the alleged misstatement.  Judge Pfalezer held that a reasonably diligent plaintiff would have had adequate information to make such a discovery before August 14, 2008, and consequently the bank’s claims had expired by the time the FDIC was appointed receiver, one year later.  Decision.

Court Denies in Part Motions to Dismiss FHFA’s Claims Against Countrywide and Various Underwriters

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On March 15, Judge Mariana Pfaelzer of the United States District Court for the Central District of California denied in part motions to dismiss brought by Countrywide, various individuals and various underwriters in connection with an amended complaint brought by the Federal Housing Finance Agency in connection with the sale of $26.6 billion in RMBS.  Countrywide and its affiliates are alleged to have acted as issuer, originator and depositor in connection with the securitizations.  The court held that FHFA plausibly alleged that the offering documents concerning the sale of the RMBS contained material misrepresentations and omissions regarding loan-to-value ratios, underwriting guidelines and credit ratings of the RMBS, but dismissed FHFA’s allegations involving owner-occupancy data.  The court dismissed claims of negligent misrepresentation and aiding and abetting fraud as to all defendants, claims under Washington, D.C.’s blue sky law and Section 12(a)(2) of the Securities Act of 1933 against subsidiaries of Countrywide that were depositors, successor liability claims against Bank of America and claims under Section 11 of the Securities Act of 1933 against the Individual Defendants.  Among the claims that survived the motions to dismiss are claims under Sections 11 and 12(a)(2) against the underwriter defendants and a common law fraud claim against the Countrywide defendants.  Defendants initially had filed first-stage motions to dismiss FHFA’s claims on timeliness and legislative jurisdiction grounds, which the court denied last year.  Order.

Bank of America and Fannie Mae Reach $10 Billion Settlement Agreement

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Bank of America announced on January 7 that it would pay $3.6 billion to Federal National Mortgage Association (Fannie Mae) and repurchase for $6.75 billion certain residential mortgage loans sold to Fannie Mae.  The agreement, which covers loans with an aggregate original principal balance of approximately $1.4 trillion and an aggregate outstanding principal balance of approximately $300 billion, resolves all outstanding and future representation and warranty claims associated with substantially all residential mortgage loans sold directly to Fannie Mae by Bank of America or Countrywide from January 1, 2000 through December 31, 2008.  Press Release.

Federal Court Narrows FDIC Lawsuit Against Countrywide

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On January 3, Judge Mariana R. Pfaelzer of the Central District of California ruled on motions to dismiss filed by defendants Countrywide, Bank of America, and UBS in an action brought against them by the Federal Deposit Insurance Corp. (FDIC) concerning $108.4 million in residential mortgage-backed securities.  The Court’s order concerned the FDIC’s claims under Section 11-51-501(1)(b) of the Colorado Securities Act.  The Court granted the motions with respect to alleged misstatements pertaining to owner-occupancy data and additional liens because the Offering Documents indicated that this data was self-reported by borrowers.  It also granted the motion with respect to successor liability claims asserted against Bank of America.  The Court denied the motions with respect to alleged misstatements pertaining to loan underwriting standards and appraisals.  The Court also denied the motions with respect to defendants’ argument that the FDIC did not adequately allege reliance and causation, holding that those are not elements of the FDIC’s claim and thus not required to be pled.  Opinion.