On December 6, Judge Mariana Pfaelzer of the United States District Court for the Central District of California dismissed in part claims brought by several insurance companies, including Minnesota Life Insurance Company, in connection with the purchase of $114 million in RMBS issued by Countrywide. Although the court denied Countrywide’s motion to dismiss the fraud claim against it, the court dismissed plaintiffs’ negligent misrepresentation claim and claims under various Minnesota consumer protection statutes. The court granted Bank of America’s motion to dismiss in its entirety, holding that plaintiffs had not sufficiently alleged successor liability against Bank of America. Decision.
Countrywide
Phoenix Light SF and Other Investors Sue Bank of America Over $261 Million in RMBS
On November 13, Phoenix Light SF Limited and other investors filed a summons with notice in the Supreme Court for the State of New York against Bank of America and various Countrywide affiliates. Plaintiffs assert claims for common-law fraud, fraudulent inducement, negligent misrepresentation, and aiding and abetting fraud arising out of their alleged purchase of $261 million of RMBS. Plaintiffs allege misrepresentations in the offering documents regarding underwriting guidelines, loan characteristics, the securities’ credit ratings, and the validity of the trusts and the assignments of loans to the trusts. The case seeks over $122 million in damages. Summons with Notice.
Multiple Plaintiffs Drop RMBS Suits Against Countrywide
On October 19, Judge Mariana R. Pfaelzer of the Central District of California dismissed with prejudice four cases against Countrywide Financial Corp., and related entities, pursuant to stipulations among the parties. Landesbank Baden-Wurttemberg, Dexia SA, Sealink Funding Ltd., and Thrivent Financial for Lutherans, had each pursued separate but similar claims against Countrywide alleging that Countrywide had concealed underwriting failures and misrepresented the quality of the loans to ratings agencies in order to receive better ratings for its RMBS. The plaintiffs, combined, had sought relief in connection with alleged misrepresentations that affected more than $2 billion RMBS bought between 2005 to 2007. The stipulations did not reveal any terms other than that each party would shoulder its own attorneys fees and costs. Stipulations.
RBS Settles Nevada Securitization Investigation
On October 23, Royal Bank of Scotland (RBS) agreed to pay $42.5 million to the State of Nevada in a settlement to end an investigation by the Nevada Attorney General into RBS’s mortgage acquisition and securitization business. The investigation focused particularly on RBS’s acquisition and securitization of subprime and pay-option adjustable rate mortgages originated by Countrywide and Option One. The Nevada Attorney General’s investigation concerned potential misrepresentations made in connection with the origination of those loans as well as RBS’s potential awareness of the originators’ allegedly deceptive practices. In addition to the settlement payment, RBS agreed to certain conditions for its future financing of subprime and pay option mortgages secured by Nevada properties, including a “reasonable review” requirement to ensure that the loans adequately disclose interest rate and payment information and are based on documented borrower income. In entering into the settlement, RBS did not admit to any wrongdoing. Agreement.
FHFA Action Against Countrywide Deemed Timely
On October 18, Judge Mariana R. Pfaelzer of the Central District of California denied Countrywide’s motion to dismiss an action brought by the Federal Housing Finance Authority seeking relief in connection with purchases by Fannie Mae and Freddie Mac of more than $26.6 billion in RMBS. Countrywide argued that the claims were barred by the statute of limitations. Judge Pfaelzer held otherwise, finding that the Housing and Economic Recovery Act of 2008 (HERA) extended the relevant statutes of repose for claims brought by the FHFA beyond the period of repose ordinarily provided by federal, Virginia and Washington, D.C. securities laws. Certain former Countrywide officers and directors also sought dismissal on personal jurisdiction grounds, claiming that they lacked sufficient contacts to Virginia and Washington, D.C. to subject them to those respective securities laws. Judge Pfaelzer found that the act of marketing the RMBS in question to these jurisdictions, along with the fact that the plaintiffs were residents of Virginia and Washington, D.C., was sufficient to create the necessary contacts to convey jurisdiction over the individual defendants. Order.
U.S. Sues Bank of America for Alleged Mortgage Fraud Against GSEs
On October 24, the U.S. Attorney for the Southern District of New York filed suit against Bank of America and Countrywide seeking damages for over $1 billion in alleged losses suffered by Fannie Mae and Freddie Mac. The complaint alleges that Bank of America and Countrywide violated the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) and the False Claims Act by selling defective loans originated through a fraudulent origination program called the “High-Speed Swim Lane” (HSSL) or “the Hustle” that was implemented by Countrywide from 2007 to 2009. The Government alleges that the program intentionally was designed to process loans quickly, ignoring or eliminating quality controls, including by replacing underwriters with “loan processors” who are alleged to have been “unqualified and inexperienced clerks.” The suit further alleges that Countrywide, and later Bank of America, concealed the defects from Fannie Mae and Freddie Mac as they continued to sell these defective loans through 2009. The Government seeks civil penalties under FIRREA as well as treble damages under the False Claims Act. In a press release issued the day of the filing, the U.S. Attorney described the lawsuit as a “clear message that reckless lending practices [would] not be tolerated.”
Court Dismisses Occupancy Status Claims Against Countrywide
On August 17, Judge Mariana R. Pfaelzer of the United States District Court for the Central District of California granted in part and denied in part the motion of Countrywide and Bank of America to dismiss an action brought by MassMutual in connection with its alleged purchase of RMBS. Judge Pfaelzer held that Countrywide could not be liable for accurately repeating borrower-provided occupancy information in its offering documents where the offering documents specifically attributed the statements about owner occupancy to the borrowers. Judge Pfaelzer further held that MassMutual failed to sufficiently plead Bank of America’s liability as a successor to Countrywide, thus warranting dismissing Bank of America from the suit. The court held, however, that MassMutual had sufficiently pled claims under the Massachusetts Uniform Securities Act for alleged misrepresentations as to loan-to-value ratios and originator compliance with underwriting guidelines. Decision.
FDIC Files Three RMBS Lawsuits as Receiver for a Texas Bank
On August 17, the FDIC, in its capacity as receiver for Texas-based Guaranty Bank, filed three actions in Texas state court arising out of the bank’s alleged investments in 36 RMBS certificates totaling $5.4 billion in face value. In all three suits, the FDIC alleges that the defendant banks violated the Texas Securities Act and the Securities Act of 1933 by making material misrepresentations and omissions in offering documents. The FDIC seeks a combined total of at least $2.1 billion, plus attorneys’ fees and costs.
Complaint: FDIC v Ally Securities, et al.
Complaint: FDIC v Countrywide Securities Corp, et al.
Complaint: FDIC v J.P. Morgan Securities, et al.
FDIC Files Five Lawsuits Against Bank Entities Over RMBS
On August 10, the FDIC in its capacity as receiver for Colonial Bank filed five lawsuits – three in Alabama state court, one in New York federal court, and one in California federal court – seeking $741 million in damages from a number of investment banks, including Bank of America Corp., JPMorgan Chase & Co., Citigroup, Inc., and others, for making allegedly false and misleading statements that induced Colonial Bank into buying mortgage-backed securities. The FDIC alleges that the banks made numerous false and misleading statements in the offering documents for the RMBS regarding the credit quality of the mortgage loans underlying the securities. The three Alabama cases each assert two causes of action under the Alabama Securities Act, as well as causes of action under Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 (Securities Act). The New York and California cases each assert causes of action under Sections 11 and 15 of the Securities Act.
Complaint: Alabama – FDIC v Bank of America, et al.
Complaint: Alabama – FDIC v Citigroup Mortgage Loan Trust, et al.
Complaint: Alabama – FDIC v Countrywide Securities Corp, et al.
Complaint: New York – FDIC v Chase Mortgage Finance Corp., et al.
Complaint: California – FDIC v Countrywide Securities Corp, et al.
Walnut Place LLC Withdraws Opposition to $8.5 Billion Bank of America Settlement
On July 23, Judge Barbara Kapnick of the Supreme Court of the State of New York approved the withdrawal of Walnut Place LLP’s opposition to Bank of America’s $8.5 billion settlement with holders of Countrywide RMBS. In its motion to intervene in the settlement, Walnut Place alleged that the trustee, Bank of New York Mellon, had not properly disclosed the settlement negotiations or kept the investors informed, and that the investors who took the lead in negotiating the settlement were improperly biased due to “substantial ongoing business relationships” with Bank of America. Decision.