GE-WMC Mortgage Securities Trust 2006-1

Potential Damages in RMBS Suit Against WMC Mortgage Drastically Reduced

On August 18, 2015, Judge Denise Cote of the federal district court for the Southern District of New York addressed the appropriate measure of potential damages in an action by Bank of New York Mellon (BoNY), as RMBS trustee, against WMC Mortgage, LLC and GE Mortgage Holding, L.L.C. In that action, BoNY seeks repurchase of a number of allegedly defective loans as trustee for the GE-WMC Mortgage Securities Trust 2006-1.  Judge Cote previously held that where repurchase is unavailable, the trustee may be entitled to damages.  On defendants’ motion to exclude the testimony of the trustee’s damages expert, the court held that the trustee’s potential damages are limited to the repurchase price for liquidated loans, as defined in the relevant agreements.  One component of that measure is the stated principal balance of the loan; the agreements define the stated principal balance of liquidated loans as “zero.”  The trustee’s damages expert had not used this measure.  As a result, Judge Cote struck the report of the trustee’s damages expert.  The decision reduces potential damages on liquidated loans from $379 million (as calculated by the trustee’s expert) to $13.3 million (the maximum calculated by the defense expert).  Order.

N.Y. Federal Court Allows RMBS Trustee Suit Against GE Mortgage to Proceed

On January 14, Judge Katherine B. Forrest of the United States District Court for the Southern District of New York denied a motion for judgment on the pleadings in an action brought by the Bank of New York Mellon as Trustee for GE-WMC Mortgage Securities Trust 2006-1 against GE Mortgage and WMC Mortgage.  Judge Forrest rejected the argument that, as a matter of law, the Pooling and Servicing Agreement (PSA) limited the Trustee’s remedies for breaches of representations and warranties to WMC Mortgage only, because this interpretation conflicted with the contemporaneous agreements signed between the parties as well as the PSA itself.  Instead, the Court held that the PSA was ambiguous regarding which entities the Trustee could assert claims against, and accordingly the Trustee’s action against GE Mortgage was not barred by the agreement.  Decision.