More than a dozen lawsuit previously filed by the regulator of the Federal National Mortgage Association and the Federal Home Loan Corp. allege that the two secondary lenders were deceived into investing in private-label residential mortgage-backed securities. A federal judge in New York has been busy deciding on scores of motions filed in the cases.
The Federal Housing Finance Agency began filing the RMBS lawsuits on behalf of Fannie Mae and Freddie Mac in July 2011. Violations of the Securities Act of 1933 are alleged.
Among defendants named in the initial lawsuits were Ally Financial Inc., Bank of America Corp., Citigroup Inc. and Countrywide Financial Corp.
One of 16 RMBS actions filed by the FHFA in U.S. District Court for the Southern District of New York is the regulator’s lawsuit against Ally Financial Inc. As Freddie’s conservator, the FHFA alleges misconduct in the secondary lender’s acquisition of RMBS sponsored by Residential Funding Corp., or RFC, from 2005 until 2007. Ally is also accused of making material misstatements or omissions about the owner-occupancy status, loan-to-value ratios and underwriting standards characterizing the underlying mortgages.
On Dec. 19, the judge dismissed several of the FHFA’s claims including claims of owner-occupancy and LTV-ratio fraud; Virginia Securities Act claims for certificates purchased prior to Sept. 6, 2006; Virginia Securities Act claims against Ally Securities, Barclays and Credit Suisse related to certificates purchased from other parties and attendant control-person claims; and Section 12(a) (2) claims against Ally Securities and RBS tied to certificates purchased from other parties and attendant control-person claims.
“Following this court’s decision of the motion to dismiss in FHFA v. UBS, discovery began in all of the coordinated cases,” U.S. District Judge Denise Cote wrote in the decision. “Briefing of defendants’ motions to dismiss in the remaining fifteen cases has occurred in two phases, with the motions in this case and the other fraud claim cases becoming fully submitted on Oct. 11, 2012. The motions in the remaining nine cases were fully submitted Nov. 9, 2012.”
BofA’s Aug. 17, 2012, motion to dismiss the FHFA’s amended complaint was denied by the same court on Nov. 28. But BofA moved on Dec. 5 for reconsideration, “arguing that ‘none of the court’s prior opinions, including opinions issued after defendants filed their motion,’ addressed their argument ‘that plaintiff’s claims for ten of the certificates at issue are barred because plaintiff alleges that the [GSEs] purchased those certificates before defendants made the allegedly actionable statements.'”
On Dec. 18, he court granted BofA’s motion for reconsideration and denied the Aug. 17 motion to dismiss.
In an FHFA lawsuit against another BofA unit, Judge Cote granted Merrill Lynch & Co.’s motion to dismiss with respect to the plaintiff’s claims of owner-occupancy and LTV-ratio fraud. But the motion was denied in all other respects.
Earlier that same month, the Manhattan federal court denied a joint motion filed by defendants in 15 of the actions challenging the FHFA’s sampling methodology, according to a ruling filed in the case against JPMorgan Chase & Co. The FHFA had filed on Oct. 10 an expert report written by Dr. Charles D. Cowan that established the methodology that it intends to use in selecting mortgages to be re-underwritten as part of its effort to prove its claims.
Greenwich Capital Financial Products Inc. was hit with an FHFA lawsuit in New York state court in June 2012. The complaint, filed on behalf of Freddie, alleges that the McLean, Va.-based firm purchased certificates issued by the First Franklin Mortgage Loan Trust 2006-FF8. Breaches of representations and warranties are alleged, and Greenwich has allegedly failed to honor repurchase demands.
Three certificates purchased by the GSEs in 2006 are the subject of FHFA’s lawsuit against SG Americas Inc. A Nov. 17 order in that case dismissed the FHFA’s Virginia Securities Act claims against non-selling defendants and all attendant control person claims. Also dismissed were plaintiff’s Section 12 (a) (2) and D.C. Blue Sky claims against underwriters with respect to certificates purchased from other parties.
It was a similar outcome in FHFA v. Barclays Bank PLC, with Judge Cote dismissing plaintiff’s Virginia Securities Act claims against SABR and the individual defendants.
Judge Cote granted on Nov. 12 Goldman Sachs & Co.’s motion to dismiss FHFA’s claims of owner-occupancy and LTV-ratio fraud in the regulator’s lawsuit against the venerable investment banker. But the motion was denied in all other respects. The same decision from the same court was made on the same day in Federal Housing Finance Agency v. Deutsche Bank AG.
