Mortgage Graveyard Litigation

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12 · 30 · 09

Several lawsuits involving failed or acquired mortgage firms have seen a good deal of activity lately. Issues involved include privacy, credit and deceit.

A class action has been certified by a federal judge in Kentucky against Countrywide Financial Corp. In addition, a proposed settlement with around 2.4 million class members has been preliminarily approved. The case, originally filed in December 2008 in U.S. District Court for the Western District of Kentucky, was tied to the theft of private data on more than 2 million customers by Rene Leonard Rebollo Jr. — a former Countrywide employee. Rebollo admitted in July 2008 to FBI agents that he had stolen and sold the data. Countrywide, which was subsequently acquired by Bank of America Corp., notified the impacted borrowers between August 2008 and November 2008.

The plaintiffs allege violations of the Fair Credit Reporting Act. In January 2009, several of the plaintiffs filed a motion for settlement that included a class certification. But objections were filed by other plaintiffs. An amendment to the settlement agreement was filed in July, while another was filed in September.

Some class members have already been offered two years of credit monitoring, while others received a package that included the Experian Guarantee and $25,000 in identity theft insurance. One group of class members is also entitled to up to $1.5 million in aggregate reimbursement for out-of-pocket expenses resulting from the theft of their private information. All settlement class members are entitled to reimbursement of as much as $50,000 per instance of identity theft as long as the loss is actual, un-reimbursed and likely the result of Countrywide’s data breach. A $5 million fund will be established. A Final Fairness Hearing is set for July 19, 2010.

On Nov. 25, Deutsche Bank AG filed a lawsuit in U.S. District Court for the Southern District of New York against Bank of America, N.A., according to a copy of the complaint. BoA allegedly failed to secure and safeguard more than $1.25 billion in cash and mortgages that it was contractually obligated to secure on behalf Deutsche Bank.

Deutsche invested $1.2 billion in asset-backed commercial paper issued by Ocala Funding LLC — a special purpose entity established to fund loans originated by failed Taylor, Bean & Whitaker Mortgage Corp., the complaint says. BoA was supposed to ensure that the investments were always collateralized by cash and mortgages already in the lender’s possession.

“As it turned out, the faith of DB and other investors was misplaced,” the complaint states. “In myriad ways, BoA failed to carry out its various duties designed to protect DB’s investment, and these failures substantially damaged Ocala and DB’s investment.”

Deutsche seeks compensatory damages, pre-judgment interest and legal fees.

On the same day as Deutsche Bank’s lawsuit, BNP Paribas Mortgage Corp. filed a similar lawsuit against BoA in the same federal court making the same allegations. BNP invested $481 million in Ocala Funding.

Morgan Stanley was sued in U.S. District Court for the Southern District of New York on Dec. 24 because it allegedly downplayed the risk in Libertas, a $1.2 billion collateralized-debt obligation it was promoting, news reports indicate. The New York firm allegedly collaborated with Moody’s Investors Service and Standard & Poor’s Ratings Service to obtain top ratings on the CDO while it was betting against all of the assets — loans originated by failed New Century Financial Corp. and Option One Mortgage Mortgage Corp.

Published reports indicate that former IndyMac Bancorp Inc. trustee Alfried H. Seigel has sued former IndyMac chief executive officer Michael Perry and former directors of the company in U.S. Bankruptcy Court in Los Angeles. Perry is accused squandering the failed firm’s assets and ignoring warning signals, while the board is accused of doing nothing to stop the actions.

Losses suffered by Educational Systems Federal Credit Union as a result of fraud at CU National Mortgage LLC are not covered under a bond with CUNA Mutual, the insurance company said in a story reported by the Credit Union Times. CUNA filed a declaratory judgment action seeking the court’s confirmation in an effort to ensure that inactions by some credit unions didn’t wind up being subsidized by other credit unions.

Pine Brook, N.J.-based CU National Mortgage collapsed earlier this year after its warehouse line-of-credit was cut, its access to Fannie Mae as a delivery channel was lost and it was no longer able to use Fannie’s Desktop Underwriter.

Seven credit unions filed a lawsuit in a California superior court against 25 current and former officers of failed Western Corporate Federal Credit Union alleging that the defendants abandoned their fiduciary duty to invest conservatively in liquid assets and instead poured capital into risky, highly leveraged mortgage-backed securities, the Courthouse News Service reported. WesCorp was seized by the National Credit Union Administration in March. The lawsuit, which also names Riskspan Inc. as a defendant, seeks damages for negligence and breach of fiduciary duties.

In Re: Countrywide Financial Corp. Customer Data Security Breach Litigation.
Case No. 3:08-md-01998-TBR, Dec. 2, 2008 (U.S. District Court for the Western District of Kentucky).

Deutsche Bank, AG, Plaintiff, v. Bank of America, N.A., Defendant.
Case No. 1:09-cv-09784-RWS, Nov. 25, 2009 (U.S. District Court for the Southern District of New York).

BNP Paribas Mortgage Corporation , Plaintiff, v. Bank of America, N.A., Defendant.

Case No. 1:09-cv-09783-RWS, Nov. 25, 2009 (U.S. Distict Court for the Southern District of New York).


Mortgage Daily Staff


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