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Repurchase Lawsuits Pile Up

Repurchase Lawsuits Pile UpMorgan Stanley repurchase case

April 3, 2007

By JERRY DeMUTH

A lawsuit has been filed by Morgan Stanley Mortgage Capital Inc. against a Maryland mortgage banker over unresolved early payment defaults. The Wall Street firm is seeking indemnification for losses and expenses, including foreclosure costs, it incurred when the lender failed to cure or repurchase 32 loans.

The suit was filed in U.S. District Court for the District of Maryland against Baltimore American Mortgage Corp.

Baltimore American, which did not respond to phone calls from MortgageDaily.com, has until April 10 to respond or face a judgment against it by default.

Five borrowers on loans originated by the Hanover-based lender failed to make the first monthly installment payment and 27 were 30 days or more late on two or more of the first six monthly payments, Morgan Stanley alleges. The defaults reportedly triggered Baltimore American’s obligation under 2003 and 2005 seller agreements to cure or repurchase those loans.

But, although Morgan Stanley gave notice of these defaults to Baltimore American on five occasions, most recently on February 12, 2007, the lender “neither cured the breaches nor repurchased any of the defaulted loans as required under the sale agreements,” according to the suit which was filed on March 20.

However, in cases of first payment and early payment defaults, “Baltimore American is obligated to immediately repurchase the loan within 10 days of written notice,” according to the Wall Street firm, which acquired subprime originator Saxon Mortgage Capital Inc. last year.

DLJ Mortgage Capital filed separate lawsuits in New York against Sunset Direct Lending and Infinity Home Mortgages. DLJ seeks nearly $24 million of repurchases from Sunset and $3 million in repurchases from Infinity.

Another lawsuit by DLJ for $4 million alleges NetBank failed to forward borrower payments, neglected to pay mortgage insurance on loans and refused to comply with requests for information regarding the payments and proof of mortgage insurance, according to a spokesman for DLJ’s parent.

Bear Stearns subsidiary EMC Mortgage Corp. last year filed in U.S. District Court in Dallas a $70 million suit against MortgageIT.

That suit charged MortgageIT with failing to repurchase 587 subprime loans when the loans went into default or prepaid.

One mortgage technology firm claims it can help mortgage bankers avoid making loans that will default.

Predictive software offered by Austin Logistics provides risk management from origination to collections — helping lenders reduce their back-end losses, according to an announcement today.

“Mortgage lenders can determine the best treatment for each account to achieve maximum impact, taking into consideration not only the account profile, but business objectives and resource constraints,” Austin Logistics said. “It predicts the risk of default or delinquency plus profitability across many different treatment options, and then finds the best strategy to maximize ROI for a given business objective.”

Morgan Stanley’s suit contends it “remains exposed to further loss and expense in connection with the defaulted loans.”

The size of the investment banker’s indemnification for damages is to be “an amount to be determined at trial,” the suit states.

It requests that the court enter a judgment in its favor and against Baltimore American “in an amount in excess of $75,000,” and direct the lender to repurchase the loans, and award Morgan Stanley “all actual damages sustained, together with attorneys’ fees, cost of suit, pre-judgment and post-judgment interest on the foregoing, and such other and further relief as permitted by contract and which this Court may deem just and proper.

Similar:

Repurchase Lawsuits
A unit of Credit Suisse has joined other Wall Street firms in using the courts to enforce loan repurchase agreements with subprime lenders.

Secondary Subprime Suit
Two mortgage companies, one owned by an investment banker and another in the process of being acquired by an investment banker, are battling over $70 million in subprime mortgage buybacks.


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