Mortgage-Backed Securities

Bank of America Settles RMBS Allegations with AIG for $650M

Published on: July 18, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Bank of America Corp. (BAC) has paid American International Group Inc. (AIG) $650 million to settle residential mortgage-backed securities fraud claims. The insurer had originally asked for $10 billion when it filed its RMBS fraud lawsuit in 2011.

According to the complaint, Bank of America’s mortgage company Countrywide Financial, misrepresented the quality of mortgage securities it was selling to investors. The settlement resolves the securities fraud litigation brought by the insurer against the bank. This includes lawsuits in California and New York accusing Bank of America of fraudulently causing billions of dollars in losses.

It also takes away the largest obstacle to Bank of America’s $8.5 billion mortgage securities settlement with institutional investors over the financial instruments that Countrywide issued. The investors in that case are 22 institutions, including BlackRock Inc. (BLK.N), and MetLife Inc. (MET.N).

Barclays and Deutsche Bank Under Scrutiny Over Barrier Options Transactions

Published on: July 17, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Senate Permanent Subcommittee on Investigations plans to conduct a hearing over what it believes are abusive transactions made by financial institutions. Bloomberg is reporting that Deutsche Bank AG (DBK), Barclays PLC (BARC), and hedge fund manager Renaissance Technologies LLC will have representatives testifying at the hearing.

The July 22 hearing is expected to focus on barrier options transactions between the banks and the hedge fund manager. There are tax benefits that allegedly came from the options, which the Internal Revenue Service and Renaissance are in dispute over.

Bloomberg reports that the transactions let the hedge fund manager’s Medallion fund borrow up to $17 for every dollar the fund owned, which is more than it could have in a traditional margin-lending relationship. Under Federal Reserve rules, stockbrokers are not allowed to lend over $1 for each client money dollar. Usually, hedge funds can borrow no more than $5 or $6 for each dollar it has and only if there is a special agreement with the banks.

Citigroup Settles Mortgage-Backed Securities Probe with DOJ for $7 Billion

Published on: July 14, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Citigroup (C) has reached a $7 billion settlement with the U.S. Department of Justice over allegations it misled investors about mortgage-backed securities in the time leading up to the 2008 financial meltdown. The settlement includes a $4 billion penalty to be paid to DOJ, $2.5 billion in consumer relief, and $500 million to a number of states and the Federal Deposit Insurance Group.

According to the U.S. government, Citigroup knew it was selling mortgage-backed securities with loans that had “material defects” and hid this information from investors. Attorney General Holder called this misconduct “egregious.” He said the bank played a role in spurring the economic crisis.

The government released a statement of fact to which Citibank consented. In it are details about how the bank ignored its own warning signs that certain mortgages were subpar and made misrepresentations about the loans that were securitized. One U.S. attorney told The Wall Street Journal that the DOJ discovered 45 mortgage-backed security deals between 2006 and 2007 where inaccuracies about underlying loans’ and their quality were made.

Bank of America Must Face SEC and Department of Justice RMBS Fraud Lawsuits, Seeks Meeting with US Attorney General

Published on: June 21, 2014 | by Shepherd Smith Edwards & Kantas, LLP

In North Carolina, U.S. District Judge Max O. Cogburn Jr. said that Bank of America Corp. (BAC) would have to face government two residential mortgage-backed securities lawsuits. The Securities and Exchange Commission and the Department of Justice contend that the bank misled investors about the quality of loans tied to $850 million in RMBS.

Bank of America wanted the cases dismissed. It argued that the investors, both financial institutions, never sued the bank.

Judge Cogburn, however, found that the SEC’s lawsuit properly laid out that the bank lied about the mortgages’ projected health in its RMBS fraud case. With the DOJ’s case, he gave the department 30 days to revise its securities lawsuit. He found that the Justice Department did not properly state its argument, which was that bank documents included false statements while leaving out key facts.

Prudential’s RMBS Lawsuit Against Bank of America Survives Motion to Dismiss

Published on: May 15, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Prudential Insurance Co.’s (PRU) residential mortgage-backed securities lawsuit against Bank of America (BAC) made it through a motion to dismiss with most of the claims made intact. The insurance company is accusing BofA of selling it $2 billion in bogus RMBS.

Prudential contends that based on its own analysis of close to 21,000 of the mortgage loans backing the RMBS certificates, they don’t see a match up with the representations that the bank and Merrill Lynch made about the certificates. Several subsidiaries are also making similar claims against BofA and its Merrill Lynch entities.

Prudential says that Merrill and Lynch and Bank of America abided by underwriting guidelines that established the rules to determine whether to securitize or grant a particular loan. However, the insurer says that while the other two said they would only exempt loans with compensating factors, they granted loan exceptions repeatedly even when these factors didn’t exist. In its securities fraud case, Prudential contends that if exceptions were given when compensating factors were lacking, then that the quality of the collateral behind the certificates was badly compromised.

U.S. Wants Bank of America to Pay Over $13B Over Residential Mortgage-Backed Securities

Published on: April 24, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Bloomberg is reporting that U.S. prosecutors want Bank of America Corp. (BAC) to settle state and federal investigations into the lender’s sale of home loan-backed bonds leading up to the 2008 financial crisis by paying over $13 billion. The bank is one of at least eight financial institutions that the Department of Justice and state attorneys general are investigating for misleading investors about the quality of the loans that were backing mortgages just as housing prices fell.

A lot of Bank of America’s loans came from its purchase of Countrywide Financial Corp., a subprime lender, and Merrill Lynch & Co., which packaged a lot of the loans into bonds.

If there ends up being no deal, the government could sue the bank.

Credit Suisse to Pay $885M To Settle RMBS Fraud Lawsuit with FHFA, Continues to Face Allegations It Hid US Accounts from Internal Revenue Service

Published on: March 22, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Credit Suisse (CS) will pay $885 million to resolve securities allegations related to the sale of approximately $16.6B in residential mortgage-backed securities that it made to Freddie Mac (FMCC) and Fannie Mae (FNMA) prior to the financial crisis. The RMBS settlement is with the Federal Housing Finance Agency, which oversees both government-controlled financing companies. It closes the books on two lawsuits.

The mortgage cases accused Credit Suisse of making misrepresentations when selling the RMBS to the two companies. Because the deal was reached prior to Credit Suisse submitting its financial results for 2013, the Swiss bank says it will take a related $312 million charge for last year, as well as post a loss for the most recent fourth quarter.

In other Credit Suisse news, one of the firm’s ex-bankers has pleaded guilty in federal court to assisting US clients so that they could avoid paying taxes to the IRS. Andreas Bachmann is one of seven employees at the firm indicted on a criminal charge that he helped Americans conceal assets of about $4 billion.

Judge Reject’s AIG’s Bid to Delay $8.5B Billion Mortgage Backed-Securities Settlement with Bank of America Corp. “Hostage”

Published on: February 21, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Less than three weeks after a judge approved the $8.5 billion mortgage securities settlement between Bank of America Corp. (BAC) and investors, another judge has rejected insurance giant American International Group’s (AG) efforts to delay the deal over its objections that loan modifications were not included in the agreement. Supporters of the mortgage-backed securities deal had accused the insurer of holding the deal “hostage.”

AIG is one of the investors in the over 500 mortgage securities trusts involved in this case. In total there are 22 institutional investors, including BlackRock Financial Management Inc. (BLK), Goldman Sachs Asset Management LP, ING Capital LLC, and Invesco Advisers, Inc.

The insurance giant opposes the settlement and contends that it isn’t convinced that the agreement will offer enough compensation for the losses sustained. AIG and other objectors are also worried that the ruling could result in additional securities lawsuits related to modified loan claims.

Lehman Brothers Holdings’ $767M Mortgage Settlement to Freddie Mac is Approved by Judge

Published on: February 19, 2014 | by Shepherd Smith Edwards & Kantas, LLP

A judge in US bankruptcy court has approved the $767 million mortgage securities settlement reached between Lehman Brothers Holdings Inc. and Freddie Mac (FMCC). The deal involves a $1.2 billion claim over two loans made by the mortgage giant to Lehman prior to its collapse in 2008.

As part of the accord, Freddie will provide loan data to the failed investment bank so that Lehman can go after mortgage originators over alleged misrepresentations. Lehman will pay the $767 million in a one-time transaction.

Its bankruptcy was a main trigger to the 2008 global economic crisis. According to Matthew Cantor, chief general counsel of the unwinding estate, the bank has already paid creditors $60 billion, with more payouts.

$13B MBS Fraud Settlement Between JPMorgan and the US is Under Dispute in New Securities Lawsuit

Published on: February 10, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Better Markets, a non-profit group, is suing the US Department of Justice to block the $13 billion mortgage-backed securities fraud settlement reached between the federal government and JP Morgan Chase (JPM). The group wants the deal to undergo judicial review.

The settlement resolves DOJ mortgage bond claims with a $2 billion civil penalty and includes $4 billion of consumer relief, another $4 billion to settle claims related to Freddie Mac and Fannie Mae, and another $1.4 billion to settle a National Credit Union Administration-instigated securities case. JPMorgan sold the mortgage bonds in question in the years heading into the housing market collapse. The loans that were involved lost value or defaulted when the bubble burst.

As part of the agreement, the firm acknowledged that it made “serious misrepresentations” about the MBS to investors. While the deal doesn’t release the bank from criminal liability, it grants civil immunity for its purported actions. Now, Better Markets, which describes itself as a “Wall Street” watchdog, is saying that the record settlement between the US government and JP Morgan was “unlawful” because a court did not review the deal.