On January 25, 2016, DBRS updated its methodology for rating Subscription Loans (Capital Call). Report.
On January 21, 2016, Fitch updated its U.S. RMBS Master Rating Criteria. Report.
RMBS
Ambac and J.P. Morgan Reach $995M RMBS Settlement
On Monday, January 25, 2016, monoline insurer Ambac Assurance Corporation (“Ambac”) reached a $995 million settlement with J.P. Morgan, resolving two RMBS actions pending before Justice Ramos in the Supreme Court of the State of New York and Ambac’s objections to J.P. Morgan’s $4.5 billion global settlement with RMBS trustees. We previously covered Ambac’s actions against J.P. Morgan here, here and here. In those actions, Ambac brought claims against J.P. Morgan as the successor to EMC Mortgage and Bear Stearns for alleged misrepresentation of the quality the loans underlying eleven RMBS transactions. The settlement also resolves Ambac’s objections to J.P. Morgan’s 2014 settlement with RMBS trustees of claims for alleged breaches of representations and warranties and servicing deficiencies. The adequacy of that settlement is currently the subject of an Article 77 proceeding before Justice Friedman of the Supreme Court of the State of New York, which we previously covered here. Press Release. Stipulation of Withdrawal.
Eleven Banks Reach Settlement with Commonwealth of Virginia on RMBS Claims
On Friday, January 22, 2016, eleven banks, including Merrill Lynch, RBS, and Barclays, agreed to settle claims brought by the Commonwealth of Virginia in a 2014 action alleging misrepresentations as to the nature, quality, characteristics, and risk profile of RMBS certificates. The certificates were purchased by the Virginia Retirement System, an agency of the Virginia Commonwealth. In its complaint, the Commonwealth alleged injury of $383.91 million and demanded treble damages of $1.15 billion, plus a civil penalty of $5,000-$11,000 per violation. The settlement announced on January 22 is for $63 million. Press Release. Complaint.
New York Appellate Court Affirms Motion to Dismiss RMBS Complaint Against Morgan Stanley
On January 12, 2016, the Appellate Division, First Department, of the New York State Supreme Court affirmed a trial court order granting Morgan Stanley’s motion to dismiss claims brought by Dexia SA’s subsidiary FSA Asset Management LLC (“FSAM”). Plaintiffs asserted fraud claims against Defendants based on allegations that Defendants knowingly misrepresented the quality of more than $626 million in RMBS sold by Morgan Stanley to Plaintiffs in 2006 and 2007. The Court’s ruling rested on a recent New York Court of Appeals decision holding that the right to assert a fraud claim related to a contract or note does not automatically transfer with the respective contract or note, and that there must be some language to evince that intent and transfer such rights. Specifically, the Court found that FSAM’s agreement to deliver “all right, title and interest” in the RMBS to the Dexia Plaintiffs did not transfer the right to bring fraud claims. The Court also concluded that FSAM could not establish damages because it received from the Dexia Plaintiffs the same amount it originally paid for the securities. Opinion.
Morgan Stanley Settles RMBS Suits With NCUA
On December 10, 2015, the National Credit Union Administration (“NCUA”) announced Morgan Stanley’s agreement to pay $225 million to settle litigation brought in New York and Kansas federal courts by NCUA as liquidating agent of U.S. Central Federal Credit Union, Western Corporate Federal Credit Union, Members United Corporate Federal Credit Union, and Southwest Corporate Federal Credit Union (the “Credit Unions”), all of which failed during the financial crisis. In the settled claims – previously covered here and here – NCUA alleged that Morgan Stanley had materially misrepresented the collateral characteristics of RMBS it sold to the Credit Unions. Morgan Stanley did not admit fault in the settlement. Press release.
Barclays and Wachovia Settle with NCUA
On October 19, 2015, Barclays PLC and Wachovia Capital Markets LLC agreed to pay $325 million and $53 million, respectively, to settle claims brought by the National Credit Union Administration Board (NCUA), as liquidating agent of five credit unions, regarding residential mortgage backed securities purchased by those credit unions. NCUA alleged in the actions (filed in New York, California, and Kansas federal courts) that the characteristics of the RMBS and the underlying loans were misrepresented in the offering documents. NCUA Press Release on Barclays. NCUA Press Release on Wachovia. We previously covered two of NCUA’s actions against Wachovia here and here.
RMBS Trustee Wins Partial Dismissal of Investor Claims
On September 29, 2015, Judge Valerie Caproni of the United States District Court for the Southern District of New York partially granted RMBS trustee Bank of New York Mellon’s (“BNYM”) motion to dismiss claims brought by Phoenix Light SF Ltd., and certain other RMBS investors (together, the “Plaintiffs”). Judge Caproni dismissed Plaintiffs’ breach of fiduciary duty claims as duplicative of Plaintiffs’ breach of contract claims, whose viability Judge Caproni also appeared to doubt in her decision, noting that “[t]he low bar at the motion to dismiss stage salvage[d] Plaintiffs’ claims for now.” Judge Caproni explained that to survive summary judgment, Plaintiffs would need to demonstrate that BNYM possessed actual knowledge of events of default on a loan-by-loan basis. Judge Caproni denied BNYM’s motion to dismiss Plaintiffs’ negligence, gross negligence, and negligent misrepresentation claims. Order.
Claims Dismissed From RMBS Class Action Against Citibank
On September 8, 2015, the Southern District of New York dismissed, for lack of jurisdiction, a large portion of claims from a derivative class action alleging that Citibank NA, as trustee of 27 trusts, had breached its contractual, statutory, and common law duties in connection with $17 billion of pooled loans. Plaintiffs invoked federal jurisdiction based on the Trust Indenture Act of 1939 (“TIA”) and asked the court to take supplemental jurisdiction over the accompanying state law claims. Plaintiffs asserted TIA claims in connection with just 3 of the 27 trusts. The court held that those claims could proceed, denying Citibank’s argument that the TIA does not provide a private right of action. However, the court declined to exercise supplemental jurisdiction over state law claims relating to the other 24 trusts. The court concluded that supplemental jurisdiction was permissible, but that it should nonetheless decline such jurisdictions because the claims as to each trust—which must be litigated loan-by-loan and trust-by-trust—were not sufficiently related. Order.
RMBS Investors Sue U.S. Bank for Trust Losses
On August 5, 2015, RMBS investors filed a putative class action against U.S. Bank, N.A. in the Supreme Court for the State of New York. The investors assert that U.S. Bank, as trustee for the MASTR Adjustable Rate Mortgage Trust 2006-OA2, harmed certificateholders in failing to timely request repurchase of defective mortgage loans by the sponsor, UBS Real Estate Securities. The investors cite recent decisions, previously covered here and here, out of the New York federal court dismissing the trustee’s claims against U.B.S. as time-barred as to certain loans. The complaint includes claims for breach of fiduciary duty, breach of duty to avoid conflicts of interest, breach of the implied covenant of good faith and fair dealing, and violation of New York’s Streit Act. Complaint.
Judge Cote Grants Partial Summary Judgment in RMBS Suit
On July 10, 2015, Judge Denise Cote of the Southern District of New York granted partial summary judgment in favor of defendants WMC Mortgage LLC and GE Mortgage Holding LLC in an action filed by Trustee Bank of New York Mellon (“BoNY”) in connection with the sale of over $900 Million in RMBS. Judge Cote dismissed BoNY’s failure to repurchase claim against WMC, citing ACE v. DB Structured Products, which held that a failure to repurchase claim is not a separately enforceable right that gives rise to a separate breach of contract claim independent of a claim for breach of representations and warranties. Judge Cote also dismissed BoNY’s indemnification claims against both defendants as duplicative of BoNY’s claim for breach of the representations and warranties in the Mortgage Loan Purchase Agreements (“MLPAs”). BoNY’s primary claim, for breach of representations and warranties, was not a subject of the motion for partial summary judgment. Opinion and Order.
In a separate decision, also issued on July 10, Judge Cote denied the defendants’ request for a jury trial, holding that the Trustee’s remaining claims, for breaches of the MLPAs and Pooling and Servicing Agreement seek equitable remedies. Opinion and Order.