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MBS Lawsuits See Action

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Investors of residential mortgage-backed securities have been using the U.S. legal system to recover losses. But at least one ratings agency recently scored a victory against its own investors over allegations of faulty MBS ratings, while a hedge fund scored its own victory in a case against a big mortgage servicer.

On March 15, the Federal Home Loan Bank of San Francisco filed lawsuits in the Superior Court of California of San Francisco against Deutsche Bank Securities Inc. and some of its affiliates and against Credit Suisse Securities LLC and some of its affiliates, according to court records. Published reports indicate that the government-sponsored enterprise seeks to rescind its purchase of the securities.

An investor lawsuit was filed U.S. District Court for the Central District of California on behalf of mortgage-backed securities investors who invested in deals sponsored by affiliates of Countrywide Financial Corp. during 2006 and 2008, a March 9 announcement from Shareholders Foundation Inc. said.

Violations of the Securities Act of 1933 allegedly occurred because certificates contained materially false and misleading statements and omitted material information about the underwriting practices used in originating the mortgages, the adequacy of the collateral and the appraisal practices used.

“Defendants could have and should have discovered the material misstatements and omissions in the company’s prospectus supplements prior to their filing with the SEC and distribution to the investing public,” Shareholders Foundation said. “Instead, they failed to do so as a result of a negligent and inadequate due diligence investigation.”

A class-action lawsuit was filed on behalf of purchasers of MASTR Adjustable Rate Mortgages Trust Mortgage Pass-Through Certificates, Series 2007-3, Milstein Sellers & Toll PLLC announced last month. The lawsuit alleges materially misleading statements in the May 14, 2007, Registration Statement and Prospectus Supplement.

A year ago, American Home Mortgage Servicing Inc. filed a lawsuit in Connecticut Superior Court Judicial District of Stamford against an affiliate of Carrington Investment Partners LP alleging that the Connecticut hedge fund, which invested in the lowest tranches of subprime residential mortgage-backed securities, devised an illegal scheme to force the mortgage servicer into unnecessarily holding on to repossessed properties much longer than necessary. That case was filed a month after Carrington Asset Holding Company LLC sued American Home in the very same court.

Last month, a judge blocked American Home’s request to dismiss Carrington’s lawsuit, Reuters reported. American Home claimed that Carrington failed to satisfy a requirement that one-quarter of the bondholders be aligned on the matter.

Two lawsuits filed against McGraw-Hill in U.S. District Court for the Southern District of New York by participants in McGraw-Hill Co.’s retirement plan were dismissed because they failed to state a claim, Dow Jones Newswires said. Subsidiary Standard & Poor’s Ratings Service allegedly provided investment-grade ratings to MBS and CDOs even though the ratings weren’t stable, didn’t reflect current information and didn’t reflect the true risk — yet McGraw-Hill didn’t reveal the impact the disclosure of the artificially high ratings would have on its stock price.

FEDERAL HOME LOAN BANK OF SAN FRANCISCO VS. DEUTSCHE BANK SECURITIES, INC., ET AL.

Case No. CGC-10-497839, March 15, 2010 (Superior Court of California, County of San Francisco).

FEDERAL HOME LOAN BANK OF SAN FRANCISCO VS. CREDIT SUISSE SECURITIES (USA), LLC, F/K/A, ET AL.

Case No. CGC-10-497840, March 15, 2010 (Superior Court of California, County of San Francisco).

LOCALS 302 AND 612 OF THE INTERNATIONAL UNION OF OPERATING ENGINEERS – EMPLOYERS CONSTRUCTION INDUSTRY RETIREMENT TRUST, on Behalf of Itself and All Others Similarly Situated, Plaintiff, v. MORTGAGE ASSET SECURITIZATION TRANSACTIONS, INC.; DAVID MARTIN; PER DYRVIK; HUGH CORCORAN; UBS REAL ESTATE SECURITIES, INC.; UBS SECURITIES, LLC; MOODY’S INVESTOR SERVICES, INC. and THE MCGRAW-HILL COMPANIES, INC., Defendants.

Feb. 22, 2010 (U.S. District Court for the District of New Jersey).

CARRINGTON ASSET HOLDING COMPANY LLC, CARRINGTON INVESTMENT PARTNERS LLP, CARRINGTON CAPITAL MANAGEMENT, LLC, and STANWICH ASSET ACCEPTANCE COMPANY LLC, Plaintiffs, v. AMERICAN HOME MORTGAGE SERVICING INC.
Docket No. FST-CV-09-5010295-S, filed Feb. 10, 2009 (Connecticut Superior Court Judicial District of Stamford).


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