RMBS Tag Archives — Page 2 of 2 — Investor Lawyers Blog

Metlife (MET) is suing Morgan Stanley (MS) for securities fraud. According to Bloomberg, the insurance company bought over $757 million in residential mortgage-backed securities from the financial firm in 2006 and 2007. In the institutional investment fraud lawsuit, Morgan Stanley had vouched that the properties behind the loans were “accurately appraised” and that the loans met underwriting guidelines. The insurer, however, contends that the loans’ originators were actually some of the subprime lending industry’s “worst culprits.”

The RMBS lawsuit comes right after MetLife agreed to pay half a billion dollars to settle a probe by a number of states over its payment practices. The investigation involves the Social Security “Death Master” file, which includes a list of names of people who have recently passed away. Insurance companies are accused of using the list to stop issuing to dead clients their annuity payments and not using the list to confirm that life insurance policyholders had died.

MetLife announced on Thursday that it was leaving the reverse mortgage industry. Nationstar Mortgage LLC (NSM) will buy its portfolio. The move is a big change for the insurance company, which had been the market leader.

Meantime, Morgan Stanley has been battling other residential mortgage-backed securities lawsuits. Earlier this year, Sealink Funding Ltd. filed a case against it over more than $556 million in RMBS that it purchased. Sealink Funding, a European fund, was set up to manage Landesbank Sachsen AG’s most high-risk assets.

The fund bought the securities from Morgan Stanley after the financial firm said it had done its due diligence on the lenders of the investments and that the loans satisfied underwriting standards and merited their AAA ratings. Sealink called the loans’ originators among the subprime lending industry’s “worst culprits.”

Last year, Allstate Insurance Co. (ALL) filed its RMBS lawsuit against Morgan Stanley over more than $104 million in RMBS it bought in several offerings. The insurer’s contention over reassurances the financial firm made about the securities is similar to the allegations made by Sealink and Metlife. Allstate has also filed RMBS lawsuits against other financial firms, including Merrill Lynch (MER) units, Citigroup Inc. (C), and Bank of America Corp.’s (BAC) Countrywide.

As previously noted by SEC Enforcement director Robert Khuzami, mortgage products played a crucial role in the financial crisis that began a few years ago. Unprecedented losses resulted when mortgage-backed securities failed. Many institutional investors are still trying to recover. They claim they were misled about the risks involved and they want their money back.

MetLife Pays $500 Million To Settle Probe Into Unpaid Claims For Dead Policy Holders, Huffington Post, April 23, 2012

MetLife to pay $500 million in multi-state death benefits probe, Los Angeles Times, April 23, 2012

Morgan Stanley Sued by Allstate on Mortgage Claims, Bloomberg, August 18, 2011

More Blog Posts:
H & R Block Subsidiary Option One Mortgage Corporation to Pay $28.2M to Residential Mortgage-Backed Securities Investors, Institutional Investor Securities Blog, April 25, 2012

Bank of New York Mellon Corp. Must Contend with Pension Fund Claims Over Countrywide Mortgage-Backed Securities, Institutional Investor Securities Blog, April 10, 2012

H & R Block (HRB) subsidiary Option One Mortgage Corporation has agreed to pay $28.2 million to settle Securities and Exchange Commission charges that it misled investors in over $4B in residential mortgage-backed securities when it failed to let them know that the company’s financial health was deteriorating. According to the SEC, Option One, which is now called Sand Canyon Corporation, promised these investors that it would replace or buy back mortgages that breached warranties or misrepresentations, even though it was unlikely that the mortgage lender would be able to fulfill these obligations.

Leading up to the 2007 fiscal year, Option One had originations of $40 billion during the year prior and was among the country’s largest mortgage lenders, originating and selling subprime loans through whole loan pool sales and market securitization in the secondary market. During this period, to be able to fulfill its buyback commitments and margin calls, it needed for H & R Block to give it financing under a credit line. However, Block wasn’t obligated to give Option One this funding, which is a fact that the mortgage lender neglected to tell its RMBS investors. When its revenues started to drop and it sustained substantial losses as the subprime mortgage market began to fail during the summer of 2006, Option One’s creditors started to ask for hundreds of millions of dollars in margin calls. (The SEC also claims that the mortgage lender’s losses were a threat to H & R Block’s credit rating while the tax service provider was negotiating its sale. Option One was sold by H & R Block to Wilbur Ross for about $1 billion.)

To settle the SEC allegations over RMBS fraud, Option One will not only pay the $28.2 million (A $10 million penalty, $14,250,558 in disgorgement, and $3,982,027 in prejudgment interest), but also, it has consented to a permanent order entry enjoining it from Securities Act of 1933 Sections 17(a)(2) and 17(a)(3) violations. The mortgage lender isn’t, however, denying or admitting to the charges.

Commenting on this RMBS case, SEC Division of Enforcement’s Structured and New Products Unit Chief Kenneth Lench spoke about the Commission’s commitment to act against parties that neglect to reveal pertinent facts that up an investment’s risk, even if the risks never becomes a reality. The SEC has been pursuing those believed to engaged in misconduct related to RMBS and other complex financial instruments.

The SEC isn’t the only one to sue Option One. In 2011, the mortgage lender settled Massachusetts securities charges against it by agreeing to pay $9.8 million in restitution and $115 million in loan modifications.

Read the SEC’s complaint (PDF)

More Blog Posts:
Residential Mortgage-Backed Securities Working Group Brings Federal Investigators and State Law Enforcement Officials Together to Investigate How MBS Abuses Contributed to 2008 Financial Crisis,

FDIC Objects to Bank of America’s Proposed $8.5B Settlement Over Mortgage-Backed Securities, Stockbroker Fraud Blog, August 30, 2011

Articles Tagged with RMBS

Morgan Stanley Sued by MetLife for Securities Fraud Over $757 Million in Residential Mortgage-Backed Securities

H & R Block Subsidiary Option One Mortgage Corporation to Pay $28.2M to Residential Mortgage-Backed Securities Investors