MBS

Rating Agency Developments

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On June 8, 2016, Fitch issued a report entitled: Fitch Updates Distressed Debt Exchange Rating Criteria.  Press release.

On June 7, 2016, Moody’s issued a report entitled: Global Property and Casualty Insurers.  Report.

On June 6, 2016, Kroll issued a report entitled: Methodology for Rating Interest-Only Certificates in CMBS Transactions.  Report.

On June 6, 2016, Fitch issued a report entitled: Fitch Publishes Rating Criteria for SHFA MBS Pass-Through Bonds.  Press release.

On June 6, 2016, Fitch issued a report entitled: Fitch Publishes The Annual Manual: U.S. Leveraged Finance Primer.  Press release.

On June 2, 2016, S&P issued a report entitled: ABS: North America Railcar Lease-Backed ABS Methodology And Assumptions.  Report.

Bank of America and U.S. Bank Agree to Settle MBS Suit with Pension Funds

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On October 30, Bank of America notified Judge Katherine B. Forrest of the United States District Court for the Southern District of New York of a planned settlement of an action brought by pension funds in 2012.  The funds had alleged that Bank of America and U.S. Bank violated their duty to ensure that the loans underlying 19 Washington Mutual RMBS portfolios did not contain missing, defective, or incomplete documents, and to ensure that defective loans were removed from the trusts.  The complaint included claims for violating the Trust Indenture Act of 1939, breach of contract, and breach of the implied covenant of good faith and fair dealing.  Letter.  Complaint.

RBS Settles MBS Claims with Assured

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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.

Federal Jury Holds Radius CEO Liable for MBS Fraud

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On February 6, a jury in the United States District Court for the Middle District of Florida found the CEO of the now-defunct Radius Capital Corp., Robert A. DiGiorgio, knowingly or recklessly made false or misleading statements to Ginnie Mae and the investing public in connection with US$23 million in MBS Radius issued in 2005 and 2006.  The Securities and Exchange Commission, which brought the case, alleged that Radius and DiGiorgio violated federal securities laws and fraudulently induced Ginnie Mae to guarantee the bonds by representing that the underlying loans were or would be insured by the Federal Housing Administration (FHA), when in fact the majority of the loans were ineligible.  The suit alleged Radius employees routinely ignored FHA underwriting standards at DiGiorgio’s direction.  In its verdict, the jury determined that Mr. DiGiorgio violated Sections 17(a)(1), (2), and (3) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rules 10b-5(a), (b), and (c) promulgated thereunder.  Verdict.

FHFA Increase of Guarantee Fees

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On December 9, the FHFA, in connection with its fulfillment of the ‘Strategic Plan for Enterprise Conservatorships,’ directed Fannie Mae and Freddie Mac to raise their guarantee fees in three separate components: (i) increase the base (or ongoing) fee by 10 basis points; (ii) update the upfront grid to better align pricing with the credit risk characteristics of the borrower; and (iii) eliminate the upfront 25 basis point adverse market fee except in the four states where foreclosure carrying costs are more than two standard deviations greater than the national average.  For loans exchanged for MBS, the price changes will be effective starting April 1, 2014.  For loans sold for cash, the price changes will be effective starting March 1, 2014.  FHFA Release.

MBIA and Flagstar Settle

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On May 2, MBIA Insurance Corporation announced that it reached a settlement with Flagstar Bank in its lawsuit arising out of $1 billion in Flagstar-sponsored MBS that MBIA insured.  MBIA sued Flagstar for breach of warranty under the insurance agreements, breach of the repurchase protocol, material breach of the insurance agreements, and reimbursement.  MBIA alleged that representations and warranties made by Flagstar about the insured mortgage loans and about Flagstar’s operations and quality-control procedures were false.  Under the terms of the Settlement Agreement, MBIA will receive $110 million in cash and other consideration in return for termination of the pending lawsuit. Press Release.

New York, Delaware AGs Again Intervene in BofA-Countrywide MBS Settlement Proceeding

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On Wednesday, June 6, 2012, Judge Barbara R. Kapnick granted the motions of the Attorneys General of the states of New York and Delaware to intervene in the proceeding to approve the $8.5 billion settlement between Bank of America and investors in certain Countrywide MBS. Both Attorneys General previously had been allowed to intervene in related federal court proceedings. The case was subsequently remanded to state court, where the New York and Delaware AGs again sought to intervene. In granting the motions over the objection of the trustee for the MBS trusts and certain institutional investors, Judge Kapnick found that the Attorneys General had “identified legitimate quasi-sovereign interests at play in this Proceeding,” and that the intervention would not result in undue delay. Order.

ResCap Seeks Automatic Bankruptcy Stay of 27 MBS Suits

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On May 25, 2012, Residential Capital LLC (“ResCap”) filed a complaint in United States Bankruptcy Court for the Southern District of New York seeking declaratory and injunctive relief to extend the automatic stay over 27 MBS lawsuits against it, its affiliates, and its executives while it undergoes bankruptcy restructuring. ResCap alleges that all of the lawsuits against its non-debtor affiliates are inextricably connected to the debtor affiliates, and that such lawsuits will drain the debtors’ estates by forcing those entities to undergo extensive discovery and face significant indemnification claims by their directors and officers. ResCap also alleges that by allowing the lawsuits to proceed, ResCap will face significant risk of collateral estoppels and evidentiary prejudice. Complaint.

Second Circuit Affirms Denial of Class Certification in Actions by Pension Funds

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On April 30, 2012, the United States Court of Appeals for the Second Circuit affirmed a lower court’s denial of class certification in two putative class action lawsuits brought by New Jersey Carpenters Health Fund and Boilermaker Blacksmith National Pension Trust against Goldman Sachs and the Royal Bank of Scotland, respectively. The pension funds asserted claims under Sections 11, 12, and 15 of the Securities Act of 1933 for purported misrepresentations and omissions in various MBS offerings. In a non-precedential summary order, the Second Circuit held that the court below had used the correct standard in finding that the suits will require individualized inquiries into plaintiffs’ knowledge of the alleged misstatements or omissions and therefore declined to certify the proposed classes as defined. Decision.