Mortgage-Backed Securities

$629M Mortgage-Backed Securities Lawsuit Blames RBS Securities and Other Financial Firms For Bankruptcy of Western Corporate Federal Credit Union in 2009

Published on: July 26, 2011 | by Shepherd Smith Edwards & Kantas, LLP

The National Credit Union Administration has filed a $629 million securities fraud lawsuit against RBS Securities, Wachovia Mortgage Loan Trust LLC, Nomura Home Equity Loan Inc., Greenwich Capital Acceptance Inc., Lares Asset Securitization Inc., IndyMac MBS Inc., and American Home Mortgage Assets LLC. The NCUA is accusing the financial firms of underwriting and selling subpar mortgage-backed securities, which caused Western Corporate Federal Credit Union to file for bankruptcy, as well as of allegedly violating state and federal securities laws.

The defendants are accused of misrepresenting the nature of the bonds and causing WesCorp to think the risks involved were low, which was not the case at all. NCUA says that the originators of the securities “systematically disregarded” the Offering Documents’ underwriting standards. The agency blames broker-dealers and securities firms for the demise of five large corporate credit union: WesCorp, US Central, Members United Corporate, Southwest Corporate, and Constitution Corporate.

Last month, NCUA filed separate complaints against JPMorgan Chase Securities and RBS Securities. The union believes that those it considers responsible for the issues plaguing wholesale credit unions should cover the losses that retail credit unions are having to cover. NCUA says it may file up to 10 mortgage-backed securities complaints seeking to recover billions of dollars in damages. As of now, it is seeking to recover $1.5 billion.

NCUA acts as the “liquidating agent” for failed credit unions. Wholesale credit unions provide electronic payments, check clearing, investments and other services to retail credit unions, which actively work with borrowers.

NCUA sues JPMorgan and RBS to recover losses from failed institutions, Housing Wire, June 20, 2011

NCUA seeks $629M in damages from RBS Securities, Credit Union National Association, July 19, 2011

Feds Sue Bankers Over Fall in Bonds, The Wall Street Journal, June 21, 2011

Federal Home Loan Banks Say Countrywide Financial Corp Mortgage Bond Investors May Be Owed Way More than What $8.5B Securities Settlement with Bank of America Corp. is Offering

Published on: July 22, 2011 | by Shepherd Smith Edwards & Kantas, LLP

According to six Federal Home Loan Banks, the investors of Countrywide Financial Corp.’s mortgage bonds may be entitled to three or more times more than what the proposed $8.5 billion securities settlement reached with Bank of America Corp (BAC) is offering. Bank of America acquired Countrywide in 2008.

Under the current settlement, which was reached with Bank of New York Mellon (the trustee of 22 institutional investors), Bank of America is supposed to pay those who placed money in the 530 residential mortgage securitization trusts that Countrywide had set up. Now, however, the Federal Home Loan Banks of Chicago, Boston, Pittsburgh, Indianapolis, Seattle, and San Francisco have filed a court filing seeking more information about the deal. The home loan banks claim that they also invested over $8.5 billion in the mortgage-backed securities. While the current proposal requires that Bank of America repurchase just 40% of MBS that defaulted, the FHLBs believe there may be grounds for upping the proposed settlement amount to at least $22 billion and they may want to join the case.

The six FHLBanks are not the only ones to object to BofA’s proposed settlement. Walnut Place LLC I-XI, which represents another group of Countrywide MBS investors, also has filed a court petition. They claim that Bank of New York Mellon was only attempting to arrive at an agreement for its 22 institutional investors that the rest of the investors would just have to abide by. Walnut Place LLC I-XI wants to block the current settlement and be excluded from any agreement that is finalized between BofA and Bank of New York Mellon.

Mortgage-Backed Securities
If you or your company suffered financial losses from investing in mortgage-backed securities, an experienced securities fraud attorney may be able to determine whether you have grounds for an institutional investment fraud claim.

Related Web Resources:

Mortgage Investors May Be Owed Three Times More in BofA Deal, Bloomberg, July 21, 2011

More Blog Posts:
Countrywide Finance. Corp, UBS Securities LLC, and JPMorgan Securities LLC Settle Mortgage-Backed Securities Lawsuit Filed by New Mexico Institutional Investors for $162M, Institutional Investors Securities Blog, March 10, 2011

Bank of America and Countrywide Financial Sued by Allstate over $700M in Bad Mortgaged-Backed Securities, Stockbroker Fraud Blog, December 29, 2010

Countrywide Financial, Merrill Lynch, and Citigroup Executives Defend Their Hefty Compensations Following Subprime Mortgage Crisis, Stockbroker Fraud Blog, March 12, 2008

Wells Fargo Settles Mortgage-Backed Securities Class Action Case for $125M

Published on: July 19, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Wells Fargo & Co. (WFC) has consented to pay $125 million to settle allegations that it misled investors about the risks involved in mortgage-backed securities. The plaintiffs in the class action securities lawsuit include a number of public pensions, including the New Orleans Employees’ Retirement System, Government of Guam Retirement Fund, Alameda County Employees’ Retirement Association, the General Retirement System of Detroit and the Louisiana Sheriffs’ Pension and Relief Fund. Wells Fargo is the biggest home lender in the country.

The securities in question were backed by mortgage loans that Wells Fargo or its affiliates had bought or originated, which were issued through Wells Fargo Asset Securities Corp. in July and October 2005 and September 2006. Per the investors’ securities fraud lawsuit, the bank misrepresented the quality of the loans in 28 offerings (they were accompanied by inflated appraisals), which resulted in artificially high ratings for the securities. Wells Fargo also allegedly neglected to disclose that it did not follow the proper underwriting standards. As a result, the true risks of investing in these mortgage-backed securities were not disclosed.

A judge must still approve the proposed MBS settlement. However, by agreeing to settle, Wells Fargo and the underwriters have been quick to emphasize that this is not an admission of wrongdoing.

Meantime, Wells Fargo must still deal with MBS lawsuits filed by federal home loan banks and individual investors in Illinois, California, and Indiana. The investment bank was one of several that were sued in 2009 over alleged securities violations related to the sale of $36 billion in mortgage pass-through certificates. It was just last month that Bank of America consented to pay investors $8.5 billion for their mortgage back-securities-related losses that the investment bank assumed after its acquisition of Countrywide Financial.

Wells Fargo settles MBS investors claims for $125 million, Housing Wire, July 8, 2011

Wells Fargo to Pay $125 Million to Settle Mortgage-Backed Securities Case, Bloomberg, July 7, 2011

More Blog Posts:
Bank of America Cop. (BAC)’s Merrill Lynch a Defendant of Class-Action Mortgage-Backed Securities Lawsuit Against at Least 1,800 Investors, Institutional Investor Securities Blog, June 25, 2011

National Credit Union Administration Board Files $800M Mortgage-Backed Securities Fraud Lawsuits Against JP Morgan Securities, RBS Securities, and Other Financial Institutions, Institutional Investor Securities Blog, June 23, 2011

Allstate Files Mortgage-Backed Securities Fraud Lawsuit Against Morgan Stanley

Published on: July 6, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Allstate Insurance Co., which bought over $104M in residential mortgage-backed securities in 6 offerings from Morgan Stanley between ‘05 and ’07 is suing the broker-dealer for securities fraud. The insurer claims that the financial firm sold it RMBS under the assurances that they were in alignment with “conservative” underwriting standards and that the properties had received accurate appraisals when, actually, Morgan Stanley RMBS did not meet these standards and had come from originators that Allstate categorizes as among “worst” in the subprime lending:

• New Century Financial Corp.
• Decision One Mortgage Co.
• WMC Mortgage Corp.
• First NLC Financial Services
• Wilmington Finance Inc.
• AIG Federal Savings Bank

Allstate says that leading up to the financial collapse, it had acquired $2.78 billion in mortgage-backed securities. It bought RMBS from Morgan Stanley because of the “central role” the financial firm made in creating and selling the securities, the latter’s assurances that it had done its due diligence on the mortgages backing the securities, and because of the prospectuses, registration statements, and other documents. Now, the insurance company believes that the brokerage firm either knew that the lenders were putting forth risky loans that did not conform to standards or recklessly disregarded the facts.

Allstate is seeking unspecified compensatory and/or “recessionary” damages and is asking for a jury trial. This is not the first RMBS that the insurance company has filed. Allstate has already sued several other brokerage firms for MBS fraud including:

• Merrill Lynch (a Bank of America unit)
• Countrywide (also a Bank of America units)
• Citigroup Inc.
• JP Morgan Chase & Co.
• Deutsche Bank AG
• Credit Suisse Group AG

Related Web Resources:
Morgan Stanley Sued by Allstate Over Mortgage Securities Fraud Claims, Bloomberg, July 6, 2011

Allstate adds Morgan Stanley to RMBS litigation pool, Housing Wires, July 6, 2011

More Blog Posts:
Bank of America Cop. (BAC)’s Merrill Lynch a Defendant of Class-Action Mortgage-Backed Securities Lawsuit Against at Least 1,800 Investors, Institutional Investors Securities Blog, June 25, 2011

National Credit Union Administration Board Files $800M Mortgage-Backed Securities Fraud Lawsuits Against JP Morgan Securities, RBS Securities, and Other Financial Institutions, Institutional Investors Securities Blog, June 23, 2011

Morgan Keegan Settles Subprime Mortgage-Backed Securities Charges for $200M, Stockbroker Fraud Blog, June 29, 2011

Bank of America Cop. (BAC)’s Merrill Lynch a Defendant of Class-Action Mortgage-Backed Securities Lawsuit Against at Least 1,800 Investors

Published on: June 25, 2011 | by Shepherd Smith Edwards & Kantas, LLP

U.S. District Judge Jed S. Rakoff has ruled that Merrill Lynch must face a class action securities fraud lawsuit over mortgage-backed securities. The class of at least 1,800 investors consists of the buyers of 31 tranches of MBS in 18 different offerings that were sold between February 2006 and September 2007. Merrill Lynch is a unit of Bank of America Corp. (BAC).

The investors, who filed their litigation in 2008, are accusing Merrill of misleading them in the offering documents for certificate valued at $16.5 billion and of falsely claiming that the underlying mortgages were in compliance with underwriting guidelines. Plaintiffs include the Los Angeles County Employees Retirement Association, the Mississippi Public Employees’ Retirement System, the Wyoming state treasurer, the Connecticut Carpenters Annuity Fund, and the Connecticut Carpenters Pension Fund. The class action certification lets the investors put their claims together into one lawsuit rather than having to individually push their cases through.

Meantime, Bloomberg.com is reporting that in a separate securities fraud lawsuit, also against Bank of America, U.S. District Judge William Pauley in Manhattan consolidated three cases accusing the investment bank of hiding the risks involved in mortgage-backed securities and of not using appropriate controls in processing foreclosures. The lead plaintiff in this case is Pennsylvania Public School Employees’ Retirement System.

Securities Class Actions
“The average net recovery for victims in securities class action claims is about 8% of their losses because such claims face many problems,” says Shepherd Smith Edwards and Kantas founder and securities fraud attorney William Shepherd. “For example, only federal securities fraud claims can be made in such cases, which are often difficult to prove. However, investors who “opt out” of the class in a timely manner can file their own individual claims, including under state law claims often easier to prove. Our stockbroker fraud lawyers has represented many investors who have opted-out of securities class actions.”

Shepherd continues, “Unfortunately, many securities class action claims are filed with very short “opt out” dates and some of these cases are later settled on terms that arguably favor the defendants while large payments end up going to the lawyers representing the investor/ victims in the class. Many believe the true losers in such cases are the members of the investor class who suffered the losses. [We have no information at this time to suggest such a result in this matter.] ”

Related Web Resources:
Merrill Must Face Class Action Over Mortgage Securities, Bloomberg, January 20, 2011

More Blog Posts:
National Credit Union Administration Board Files $800M Mortgage-Backed Securities Fraud Lawsuits Against JP Morgan Securities, RBS Securities, and Other Financial Institutions, Institutional Investor Securities Blog, June 23, 2011

MBIA Can Sue Morgan Stanley Over Alleged Misrepresentation of MBS Risks, Says US New York Supreme Court, Institutional Investor Securities Blog, June 14, 2011

Dow Corning Corp.’s $165M Securities Fraud Lawsuit Against Merrill Lynch & Co. Can Proceed, Says District Court Judge, Stockbroker Fraud Blog, April 7, 2011

National Credit Union Administration Board Files $800M Mortgage-Backed Securities Fraud Lawsuits Against JP Morgan Securities, RBS Securities, and Other Financial Institutions

Published on: June 23, 2011 | by Shepherd Smith Edwards & Kantas, LLP

This week, the National Credit Union Administration Board filed two securities fraud lawsuits accusing a number of financial institutions of misrepresenting the risks involved in the mortgage-securities that they sold to investors. The federal credit union is seeking a combined $800 million.

JP Morgan Securities LLC, Novastar Mortgage Funding Corp, and RBS Securities Inc. are just a few of the defendants, who are accused of committing securities fraud against five wholesale credit unions. Both mortgage-backed securities lawsuits claim that large investment banks sold securities to institutional investors that held subprime loans as Triple-A rated investments. The financial firms allegedly omitted material facts, including that the securities were larded with loans issued to borrowers at high risk of default. The defendants are accused of getting the wholesale credit unions to purchase over $3 billion in mortgage-backed securities that, according to The Wall Street Journal, were “destined to perform poorly.” Subsequently, the credit unions became 5 of the over 40 in the US that have failed since 2009. It has since been up to the approximately 7,000 remaining credit unions to take on some of the loans, while charging higher interest rates to stay in operation. Meantime, the failures of the credit unions have forced NCUA to take on about $50 billion in battered bonds that are currently valued at a fraction of their original value.

When a borrower defaults on a loan payment, the value of the mortgage-backed security suffers. The NCUA’s complaint says that as a result, the credit ratings assigned too many mortgage-backed securities that the credit union purchased collapsed in short order. The NCUA plans to file more securities fraud complaints. Goldman Sachs will likely be among the new defendants.

Feds Sue Bankers Over Fall in Bonds, The Wall Street Journal, June 21, 2011

National Credit Union Administration Board sues big banks for $800M, Biz Journals, June 20, 2011

National Credit Union Administration

More Blog Posts:
MBIA Can Sue Morgan Stanley Over Alleged Misrepresentation of MBS Risks, Says US New York Supreme Court, Institutional Investor Securities Blog, June 14, 2011

“Skin in the Game” Mortgage Rule Announced by Federal Regulators, Institutional Investor Securities Blog, April 16, 2011

Ambac Financial Group, Insurers, and Bank Underwriters to Pay $33M to Settle Securities Lawsuits Alleging Concealed Risks Related to its Bond-Insurance Business, Stockbroker Fraud Blog, May 18, 2011

JP Morgan Settles for $153.6M SEC Charges Over Its Marketing of Synthetic Collateralized Debt Obligation

Published on: June 18, 2011 | by Shepherd Smith Edwards & Kantas, LLP

J.P. Morgan Securities LLC (JPM) has consented to pay $153.6 million to settle Securities and Exchange Commission charges that it misled investors in 2007 when it marketed a synthetic collateralized debt obligation that was linked to the US housing market. The financial firm also agreed to a permanent bar from future violations of the 1933 Securities Act and to bettering its business practices related to mortgage securities transactions. By agreeing to settle, JP Morgan is not denying or admitting to the allegations. The settlement, however, should allow investors to get a “full return” on their losses.

The SEC says that the brokerage firm mainly used credit default swaps that referenced other CDO securities tied to the housing market to structure the Squared CDO 2007-1. While the CDO’s marketing collateral said that GSCP, GSC Capital Corp.’s investment advisory arm, chose the deal’s investment portfolio, investors were not notified that hedge fund Magnetar Capital LLC played a key part in choosing the portfolio’s CDOs and or that it would benefit if the CDO assets defaulted.

The Commission also claims that when JP Morgan discovered in early 2007 that it could sustain huge losses because the housing market was in peril, it started marketing the deal to investors outside its regular client base. Less than a year later, the securities had lost the majority, if not all, of their value.

The SEC’s complaint accuses the investment bank of selling approximately $150 million of “mezzanine notes” of the Squared deal to over a dozen institutional investors who consequently lost their investments. Also, when the Squared deal was shut in May 2007, Magnetar’s short position was $600 million while its long position was $8.9 million.

J.P. Morgan to Pay $153.6 Million to Settle SEC Charges of Misleading Investors in CDO Tied to U.S. Housing Market, SEC, June 21, 2011

More Blog Posts:
Washington Mutual Bank Bondholders’ Securities Fraud Lawsuit Against J.P. Morgan Chase & Co. is Revived by Appeals Court, Institutional Investor Securities Blog, June 29, 2011

National Credit Union Administration Board Files $800M Mortgage-Backed Securities Fraud Lawsuits Against JP Morgan Securities, RBS Securities, and Other Financial Institutions, Institutional Investor Securities Blog, June 23, 2011

JP Morgan Chase Agrees to Pay $861M to Lehman Brothers Trustee, Stockbroker Fraud Blog, June 28, 2011

MBIA Can Sue Morgan Stanley Over Alleged Misrepresentation of MBS Risks, Says US New York Supreme Court

Published on: June 14, 2011 | by Shepherd Smith Edwards & Kantas, LLP

In MBIA Insurance Corp. v. Morgan Stanley, N.Y. Sup.Ct., No. 29951-10, the New York Supreme Court says that insurance company MBIA can sue Morgan Stanley and affiliates Saxon Mortgage Services Inc. and Morgan Stanley Mortgage Capital Holdings LLC for alleged misrepresentations about the risks involved in insuring residential mortgages that were sold to investors as mortgage-backed securities. While Judge Gerald Loehr allowed MBIA to bring a cause of auction for fraud against the broker-dealer and its affiliates, he did dismiss an unjust enrichment claim against Saxon.

MBIA claims that the defendants made their representations in their talks leading up to the agreement that had the insurer saying it would insure over $223 million in residential MBS that investors bought in the transaction. The alleged misstatements were over the characteristics of the mortgage loans (both pooled and individual), the quality of the collateral for the loans, and borrowers’ credit ratings. The action dealt with the securitization of a transaction involving about 5,000 subordinate-lien residential mortgages that were bought, structured, and sold by the defendants. Morgan Stanley is also accused of representing to MBIA that the mortgage loans weren’t subprime loans but were instead alternative documentation loans.

MSMCH had acquired the mortgage loans and then transferred and pooled them to Morgan Stanley Capital Inc., which then transferred them to a trust that had LaSalle Bank National Association serve as a trustee. The trust put out certificates secured by groups of those mortgages, which were sold, and paid a yield to certificate holders connecting the cash flow to the loans.

More Blog Posts:

Goldman Sachs Group Made Money From Financial Crisis When it Bet Against the Subprime Mortgage Market, Says US Senate Panel, Institutional Investor Securities Blog, April 15, 2011

“Skin in the Game” Mortgage Rule Announced by Federal Regulators

Published on: April 16, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Federal regulators are proposing new risk retention rules geared toward reducing risky low mortgage lending. The ‘skin in the game” rule was articulated in the Dodd-Frank Consumer Protection Act, which mandates credit risk sharing and for mortgage-backed securities (MBS) sponsors and those of other asset classes to align their interests with investors.

Under the new qualified residential mortgage rules, lenders would have to retain 5% of the risk, known as “skin in the game,” for non-qualifying loans that they make rather than selling all of them to investors. The loans would likely include higher mortgage costs. Loans sold to Freddie Mac or Fannie Mae, however, would be exempt from the rules as long as they remain in government conservatorship. Loans through the Federal Housing Administration would also be exempt.

A qualified residential mortgage (QRM) is a mortgage that regulators consider to be a loan that offers a low risk of default. Some of the requirements for qualifying for a QRM loan:

• Placing at least a 25% down if you are buying a house.
• Having at least 25% equity to refinance.
• Having at least 30% equity for cash-out refinancing.
• No 60-day delinquencies over the past two years.
• Not being able to get a loan with interest only payments, negative amortization, or “significant interest rate increases.”

Our securities fraud lawyers represent institutional investors who have lost money from investing in mortgage-backed securities or other investments.

Related Web Resources:

Bankers pleased with ‘skin in the game’ rule, Marketwatch, March 29, 2011

More Blog Posts:
Goldman Sachs Group Made Money From Financial Crisis When it Bet Against the Subprime Mortgage Market, Says US Senate Panel, Institutional Investors Securities Blog, April 15, 2011

Bank of America and Countrywide Financial Sued by Allstate over $700M in Bad Mortgaged-Backed Securities, Stockbroker Fraud Blog, December 29, 2010

Citigroup’s $75 Million Securities Fraud Settlement with the SEC Over Subprime Mortgage Debt Approved by Judge, Stockbroker Fraud Blog, October 23, 2010

Goldman Sachs Group Made Money From Financial Crisis When it Bet Against the Subprime Mortgage Market, Says US Senate Panel

Published on: April 15, 2011 | by Shepherd Smith Edwards & Kantas, LLP

The Senate’s Permanent Subcommittee on Investigations says that because Goldman Sachs Group Inc. bet billions against the subprime mortgage market it profited from the financial crisis. The panel’s findings come following a two-year bipartisan probe and were released in a 639-page report on Wednesday.

The subcommittee released documents and emails that show executives and traders attempting to get rid of their subprime mortgage exposure, which was worth billions of dollars, and short the market for profit. Their actions ended up costing their clients that purchased the financial firm’s mortgage-related securities.

The panel says that Goldman allegedly deceived the investors when failing to tell them that the investment bank was simultaneously shorting or betting against the same investments. The subcommittee estimates that Goldman’s bets against the mortgage markets in 2007 did more than balance out the financial firm’s mortgage losses, causing it to garner a $1.2 billion profit that year in the mortgage department alone. Also, when Goldman executives, including Chief Executive Lloyd Blankfein appeared before the committee in 2010, the panel says that they allegedly misled panel members when they denied that the financial firm took an a position referred to as being “net short,” which involves heavily tilting one’s investments against the housing market.

It was just last year that the Securities and Exchange Commission ordered Goldman to pay $550 million to settle securities fraud charges over its actions related to the mortgage-securities market. The allegations in this report go beyond the claims covered by the SEC case. The report also names mortgage lender Washington Mutual, credit rating firms, the Office of Thrift Supervision, and a federal bank regulator as among those that contributed to the financial crisis.

Goldman is denying many of the subcommittee’s claims and says its executives did not mislead Congress.

Related Web Resources:
Goldman Sachs shares drop on Senate report, Reuters, April 14, 2011

Senate Panel: ‘Goldman Sachs Profited From Financial Crisis’, Los Angeles Times, April 14, 2011

Senate Permanent Subcommittee on Investigations

More Blog Posts:
Goldman Sachs Sued by ACA Financial Guaranty Over Failed Abacus Investment for $120M, Institutional Investor Securities Blog, January 10, 2011

Goldman Sachs Settles SEC Subprime Mortgage-CDO Related Charges for $550 Million, Stockbroker Fraud Blog, July 30, 2010

Goldman Sachs COO Says Investment Firm Shorted 1% of CDOs Mortgage Bonds But Didn’t Bet Against Clients, Stockbroker Fraud Blog, July 14, 2010