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Mortgage Lawsuits News | Mortgage Litigation Index
Mortgage industry lawsuit news and mortgage litigation coverage. Stories about legal settlements, judgments and mortgage class actions.


The MBS Litigator

Recent actions in MBS lawsuits

Oct. 25, 2011

By SAM GARCIA MortgageDaily.com


portrait of Sam Garcia

The New York State Supreme Court is a frequently used venue for litigation tied to mortgage-backed securities, though some of the cases wind up in federal court. Often named as a defendant in MBS lawsuits is Countrywide. Two big investment banking houses recently settled alleged actions on securitized loans.

An MBS class action against UBS Securities LLC was dismissed by a federal judge in New Jersey on Sept. 29 because of a failure to adequately plead compliance with the one-year statute of limitations on private securities litigation filings brought under Sections 11 and 12(a)(2) of the Securities Act of 1933, Eric Creizman wrote in a letter to clients. In an amended complaint, the plaintiff asserted that the bonds' offering materials failed to adequately describe the riskiness of the underlying mortgage assets.

"Judge Dennis J. Kavanaugh dismissed the complaint, ruling that plaintiff failed to allege compliance with the applicable statute of limitations with particularity, i.e., 'facts setting forth the time and circumstances of the discovery of the defendants' allegedly actionable statements, the reason why discovery was not made earlier, or the diligent efforts undertaken in making such discovery,'" according to Creizman, who is an MBS attorney and a Mortgage Daily advertiser. "Judge Kavanaugh, however, dismissed the complaint without prejudice, providing plaintiff with another chance to plead compliance with the applicable statute of limitations."

Charges lodged against Citigroup Global Markets Inc. in a Securities and Exchange Commission complaint were settled for $285 million.

The New York-based unit is Citigroup Inc.'s principal U.S. broker-dealer subsidiary. The unit allegedly misled investors in marketing a $1 billion collateralized-debt obligation that it bet against. Within months, the CDO defaulted, while Citi reportedly earned $160 million in fees and trading profits.

The CDO was known as Class V Funding III, and Citi exercised significant influence over which $500 million in assets would be included in the CDO portfolio.

"Citigroup then took a proprietary short position against those mortgage-related assets from which it would profit if the assets declined in value," the SEC stated. "Citigroup did not disclose to investors its role in the asset selection process or that it took a short position against the assets it helped select."

Citi was also sued on Sept. 23 in New York State Supreme Court by IKB Deutsche Industriebank AG over $4.2 million in RMBS, Bloomberg reported. The German lender asked a judge to rescind the sale and award unspecified punitive damages.

In Nevada, Attorney General Catherine Cortez Masto announced on Sept. 27 that an Assurance of Discontinuance with Morgan Stanley Mortgage Capital Holdings was filed. The assurance is related to Morgan Stanley's role in originating and securitizing 3,000 Nevada subprime mortgages.

Between 600 and 700 borrowers will receive between $21 million and $40 million in relief, while Morgan Stanley will refund and adjust interest rates and pay $7.2 million to prevent foreclosures and mortgage fraud in the state.

"Going forward, Morgan Stanley will only finance, purchase, or securitize Nevada subprime mortgage loans if it has engaged in a 'reasonable review' of such loans and determined that such loans comply with the Nevada Deceptive Trade Practices Act," the state said in a news release.

A Florida judge ruled that borrower Pelayo Duran can include investors in his lawsuit against Wells Fargo & Co. and GreenPoint Mortgage Funding Inc., according to an Oct. 4 press release apparently released by his attorney Gonzalo R. Dorta. The borrower, who seeks $100 million, alleges that a Wells Fargo mortgage broker lured him in through an ad in the Miami Herald then switched him to a subprime loan with GreenPoint.

Duran claims that because his loan was securitized as part of Credit Suisse
First Boston Mortgage Securities Corp. Adjustable Rate Mortgage Trust 2005-5, the lender ignored lending principles and he was "duped" into a bad loan. The appraiser on his loan, one hired through Rels Valuation, was in on the alleged scheme and inflated the property's value in his report to $1,200,000 even though the property sold for $984,000 just four months earlier.

Wells Fargo, itself, is the plaintiff in a complaint filed last month in Delaware Chancery Court against JPMorgan subsidiary EMC Mortgage LLC, according to Reuters. Wells Fargo seeks to force EMC to repurchase 800 bad mortgages included in Bear Stearns Mortgage Funding Trust 2007-AR2.

Plaintiffs in a class action filed in U.S. District Court for the Eastern District of New York against Deutsche Alt-A Securities Inc. requested documents used by Deutsche Bank Vice President Joseph Swartz in July 2010 testimony before the FDIC. The defendants opposed the request and noted that Swartz's testimony was publicly available.

The court disagreed and in an Oct. 7 ruling ordered the defendants to produce the requested documents.

A Joint Motion for a Temporary Stay of Proceedings Pending Determination by the JPML of any Objection to Transfer of This Case to the MDL Court filed by defendant Countrywide Financial Corp. was granted on Sept. 19 by the U.S. District Court for the District of Colorado. The plaintiff in the case is the Federal Deposit Insurance Corp. as receiver for United Western Bank. The defendants removed the case to federal court on Aug. 30.

Last month, the Federal Housing Finance Agency filed lawsuits against 17 issuers and underwriters of MBS purchased by Fannie Mae and Freddie Mac. Countrywide Financial Corp. was named as a defendant in one of the lawsuits, as was Bank of America Corp.

While some of the lawsuits were filed in U.S. District Court for the Southern District of New York, the complaint against Countrywide was filed in the Supreme Court of the State of New York.

FHFA claims that Countrywide improperly moved the suit from state to federal court as part of a strategy to have the case transferred to multidistrict litigation case in California, Bloomberg reported. In its motion to have the case remanded to state court, FHFA reportedly said, "In their bid to achieve removal, the Countrywide defendants stretch the doctrines upon which they rely beyond the breaking point."

The National Law Journal reported that several of the FHFA's lawsuits were moved to federal court. The banks argued that the federal court in Manhattan has original jurisdiction because the cases are "related to" pending Title II bankruptcy proceedings, and the other 13 FHFA cases are "substantially identical" to their own.


In June, BofA agreed to settle claims by investors of Countrywide MBS for $8.5 billion.

BofA and the trustee for the investors, Bank of New York Mellon Corp., filed the settlement in New York state court, WSJ.com reported. But a group of investors who see the settlement as inadequate successfully moved to have the case heard in federal court.

An article from Reuters said that BofA requested on Oct. 17 that a judge disqualify the law firm representing American International Group Inc. in a $10 billion lawsuit filed over the quality of around $28 billion in MBS. A partner at Quinn Emanuel Urquhart & Sullivan, Marc Becker, reportedly defended BofA subsidiaries Merrill Lynch & Co and First Franklin Financial Corp against similar charges.

More than $1.6 billion in RMBS are at issue in a lawsuit filed by Sealink Funding Ltd. on Sept. 29 in New York State Supreme Court against Countrywide, according to Bloomberg. The plaintiff, which was created to manage Landesbank Sachsen AG's riskiest assets after the German lender almost collapsed, also sued JPMorgan Chase & Co. on the same day.

North Carolina attorney Luke Lucas has filed several dozen lawsuits claiming that foreclosures were invalid on mortgages because the loans were securitized and subject to securities laws, the Pittsburgh Post-Gazette reported. A complaint was filed on behalf of borrower Jayson Schott against BofA subsidiary America's Wholesale Lender in U.S. District Court for the District of Western Pennsylvania on Oct. 19.

After being sued by MBIA Inc. and Ambac Financial Group, Credit Suisse's DLJ Mortgage Capital now faces a lawsuit filed a complaint in New York State Supreme Court on Oct 17 by Assured Guaranty, according to a story by The Bond Buyer. The article indicated that the defendant "materially and pervasively" breached its mortgage representations and overstating the quality of mortgage loans included in $1.8 billion MBS insured by Assured.

First Community Bank sued First Tennessee in Knox County Circuit Court in Tennessee over $100 million in alleged losses on CDO investments, the Knoxville News Sentinel reported. First Community claims that the historical assumptions touted by the issuing entities were "woefully inadequate to capture the risk of default of bank-issued underlying securities" in the CDOs.



Pension Trust Fund for Operating Engineers v. Mortgage Asset Securitization Transactions, Inc., et al.
Case No. 2:10-CV-00898-DMC-JAD (U.S. District Court for the District of New Jersey).

U.S. Securities and Exchange Commission, Plaintiff, v. Citigroup Global Markets Inc., Defendant.
Oct. 19, 2011 (U.S. District Court, Southern District of New York).

IKB Deutsche Industriebank AG (IKB) v. Citigroup Inc.
Case No. 652609/2011 (Supreme Court of the State of New York, County of New York).

PELAYO M. DURAN, Plaintiff, v. GREENPOINT MORTGAGE FUNDING, INC., a Foreign Corporation, WELLS FARGO & COMPANY a Foreign Corporation; WELLS FARGO BANK N.A., a Foreign Corporation, WELLS FARGO HOME MORTGAGE, INC., an inactive Florida Corporation, CINDY SIERRA and LEE A. ROSENTHAL, Personally; WELLS FARGO BANK N.A., AS TRUST ADMINISTRATOR FOR CREDIT SUISSE FIRST BOSTON MORTGAGE SECURITIES CORP.; ADJUSTABLE RATE MORTGAGE TRUST 2005-5, ADJUSTABLE RATE MORTGAGE-BACKED PASS-THROUGH CERTIFICATES, SERIES 2005-5; TRUSTEE, INVESTORS 1-1000 IN AND FOR THE TRUST, MERSCORP, INC., a Foreign Corporation; MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., a subsidiary of MERSCORP., INC., a Delaware Corporation, Defendants.
CASE NO.: 09-03703 CA (01) (IN 1 THE CIRCUIT COURT OF THE 11th JUDICIAL CIRCUIT IN AND FOR MIAMI-DADE COUNTY, FLORIDA GENERAL JURISDICTION DIVISION).

MASSACHUSETTS BRICKLAYERS AND MASONS TRUST FUND, Individually and on Behalf of All Other Similarly Situated, Plaintiff, v. DEUTSCH ALT-A SECURITIES, INC., et al., Defendants.
Case No. CV 08-3178 (LDW)(ARL)
(U.S. District Court for the Eastern District of New York).

FEDERAL DEPOSIT INSURANCE CORPORATION, as receiver for United Western Bank, Plaintiff, v. COUNTRYWIDE FINANCIAL CORPORATION, COUNTRYWIDE HOME MORTGAGE LOANS, INC., CWALT, INC., CWMBS, INC., COUNTRYWIDE CAPITAL MARKETS, COUNTRYWIDE SECURITIES CORPORATION, and BANK OF AMERICA CORPORATION, Defendants.
Civil Action No. 11-cv-02268-WJM-KLM (U.S. District Court for the District of Colorado).

FEDERAL HOUSING FINANCE AGENCY, AS CONSERVATOR FOR THE FEDERAL NATIONAL MORTGAGE ASSOCIATION AND THE FEDERAL HOME LOAN MORTGAGE CORPORATION, Plaintiff, -against- COUNTRYWIDE FINANCIAL CORPORATION; COUNTRYWIDE HOME LOANS, INC.; COUNTRYWIDE CAPITAL MARKETS, LLC; COUNTRYWIDE SECURITIES CORPORATION; CWALT INC.; CWABS, INC.; CWMBS, INC; BANK OF AMERICA CORPORATION; BANK OF AMERICA, N.A.; NB HOLDINGS CORPORATION; BANC OF AMERICA SECURITIES LLC; CITIGROUP GLOBAL MARKETS, INC.; DEUTSCHE BANK
SECURITIES INC.; RBS SECURITIES, INC. (f/k/a GREENWICH CAPITAL MARKETS, INC.); UBS SECURITIES, LLC; N. JOSHUA ADLER; THOMAS H. BOONE; JEFFREY P. GROGIN; RANJIT KRIPALANI; STANFORD KURLAND; THOMAS KEITH MCLAUGHLIN; JENNIFER S. SANDEFUR; ERIC SIERACKI; DAVID A. SPECTOR; Defendants.
Sept. 2, 1011 (Supreme Court of the State of New York County of New York).

FHFA v. Countrywide Financial Corp.
Case No. 11cv6916 (U.S. District Court, Southern District of New York).

American International Group Inc v. Bank of America Corp et al.
Case No. 11-06212 (U.S. District Court, Southern District of New York).

Sealink Funding Ltd. vs. Countrywide Financial Corp.
Case No. 652679/2011 (New York State Supreme Court, New York County).

Sealink Funding Ltd. vs. Bear Stearns & Co. Inc.
Case No. 652681/2011 (New York State Supreme Court, New York County).


Sam Garcia founded Mortgage Daily in 1998 and became its full-time publisher in 2000. Before that, he worked in mortgage lending for two decades.

e-mail:
[email protected]


Mortgage Backed Securities | MBS News | MBS Statistics
News about commercial and residential mortgage-backed securities. Stories about ratings actions and changes to servicer ratings. Studies and reports about the performance of securitizations and problem vintages and classes. Subprime, Alt-A, home equity and j u m b o analysis.


Secondary Marketing News | Correspondent Lender Directory
Mortgage portfolio trades and forward commitments. Correspondent lending, r e p u r c h a s e s and warehouse news. Secondary marketing statistics and lawsuits.



Corporate Mortgage News
M e r g e r s, a c q u i s i t i o n s and private and public offerings. Other corporate activity including executive appointments, bankruptcies name changes.


Nonprime and Subprime News | Subprime Statistics
Stories about non-QM products. Coverage of subprime, Alt-A and
hard money lending. Home-equity loans and home-equity lines of credit.


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