Bloomberg-

NPR-

Seattle’s City Council has voted to not renew its contract with Wells Fargo, in a move that cites the bank’s role as a lender to the Dakota Access Pipeline project as well as its creation of millions of bogus accounts. As a result, the city won’t renew its contract with the bank that expires next year.

The unanimous vote will pull more than $3 billion in city funds from the banking giant, the council says. Seattle says the bidding process for its next banking partner will “incentivize ‘Social Responsibility.'”

Not long after Seattle’s vote, the City Council in Davis, Calif., took a similar action over the pipeline. It voted unanimously to find a new bank to handle its roughly $124 million in accounts by the end of 2017.

[NPR]

King5-

Seattle is on track to end ties with Wells Fargo over the Dakota Access Oil Pipeline.

The Seattle City Council Finance Committee voted 8-0 on Wednesday to divest $3 billion in City of Seattle money out of Wells Fargo over the bank’s role as lender for the Dakota Access Pipeline and seek a more socially responsible bank to manage the city’s money.

[KING5]

© 2010-19 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.

The Justice Department announced today a $5.28 billion settlement with Credit Suisse related to Credit Suisse’s conduct in the packaging, securitization, issuance, marketing and sale of residential mortgage-backed securities (RMBS) between 2005 and 2007.  The resolution announced today requires Credit Suisse to pay $2.48 billion as a civil penalty under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA).  It also requires the bank to provide $2.8 billion in other relief, including relief to underwater homeowners, distressed borrowers and affected communities, in the form of loan forgiveness and financing for affordable housing.  Investors, including federally-insured financial institutions, suffered billions of dollars in losses from investing in RMBS issued and underwritten by Credit Suisse between 2005 and 2007.

“Today’s settlement underscores that the Department of Justice will hold accountable the institutions responsible for the financial crisis of 2008,” said Attorney General Loretta E. Lynch. “Credit Suisse made false and irresponsible representations about residential mortgage-backed securities, which resulted in the loss of billions of dollars of wealth and took a painful toll on the lives of ordinary Americans. Under the terms of this settlement, Credit Suisse will pay $2.48 billion as a fine for its conduct. And Credit Suisse has pledged $2.8 billion in relief to struggling homeowners, borrowers, and communities affected by the bank’s lending practices. These sums reflect the huge breach of public trust committed by financial institutions like Credit Suisse.”

“Credit Suisse claimed its mortgage backed securities were sound, but in the settlement announced today the bank concedes that it knew it was peddling investments containing loans that were likely to fail,” said Principal Deputy Associate Attorney General Bill Baer. “That behavior is unacceptable. Today’s $5.3 billion resolution is another step towards holding financial institutions accountable for misleading investors and the American public.”

“Resolutions like the one announced today confirm that the financial institutions that engaged in conduct that jeopardized the nation’s fiscal security will be held accountable,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division. “This is another step in the Department’s continuing effort to redress behavior that contributed to the Great Recession.”

“Credit Suisse’s mortgage misconduct hurt people, including in Colorado,” said Acting United States Attorney for the District of Colorado Bob Troyer.  “Unscrupulous lenders knew they could get away with shoddy underwriting when making mortgage loans, because they knew Credit Suisse would buy those defective mortgage loans and put them into securities.  When those mortgages went into foreclosure, many people got hurt:  families lost their homes, communities were blighted by empty houses, and investors who had put their trust in Credit Suisse’s supposedly safe securities suffered huge losses.  Our office led this investigation into Credit Suisse to protect homeowners, communities, and investors across the country, including here in Colorado.  Credit Suisse is paying a hefty penalty and acknowledging its misconduct, but that is not all.  Years after the Great Recession, many families still struggle to afford a home, so we also crafted an agreement to bring needed housing relief to such families, including specifically in Colorado.”

This settlement includes a statement of facts to which Credit Suisse has agreed.  That statement of facts describes how Credit Suisse made false and misleading representations to prospective investors about the characteristics of the mortgage loans it securitized.  (The quotes in the following paragraphs are from that agreed-upon statement of facts, unless otherwise noted.):

• Credit Suisse told investors in offering documents that the mortgage loans it securitized into RMBS “were originated generally in accordance with applicable underwriting guidelines,” except where “sufficient compensating factors were demonstrated by a prospective borrower.”  It also told investors that the loans “had been originated in compliance with all federal, state, and local laws and regulations, including all predatory and abusive lending laws.”
• Credit Suisse has now acknowledged that “Credit Suisse repeatedly received information indicating that many of the loans reviewed did not conform to the representations that would be made by Credit Suisse to investors about the loans to be securitized.”  It has acknowledged that in many cases, it purchased and securitized loans into its RMBS that “did not comply with applicable underwriting guidelines and lacked sufficient factors” and/or “w[ere] not originated in compliance with applicable laws and regulations.”  Credit Suisse employees even referred to some loans they securitized as “bad loans,” “‘complete crap’ and ‘[u]tter complete garbage.’”
• Credit Suisse acquired some of the mortgage loans it securitized by buying, from other loan originators, “Bulk” packages containing numerous loans.  For example, in December 2006, Credit Suisse purchased a “Bulk” pool of approximately 10,000 loans originated by Countrywide Home Loans.  Credit Suisse selected fewer than 10 percent of these loans for due diligence review.  “Reports from Credit Suisse’s due diligence vendors showed that approximately 85 percent of the loans in this sample violated Countrywide’s underwriting guidelines and/or applicable law,” but “Credit Suisse securitized over half of the loans into various RMBS it then sold to investors.”  Credit Suisse did not review the remaining unsampled 90 percent of the pool to determine whether those loans had similar problems.  Instead, it “securitized an additional $1.5 billion worth of unsampled—and therefore unreviewed—loans from this pool into various RMBS it then sold to investors.”  A Credit Suisse manager wrote to another manager who was reviewing these loans, “Thanks for working thru this mess.  If it helps, it looks like we will make a killing on this trade.”
• Credit Suisse acquired other mortgage loans for securitization through its “Conduit” channel.  Through this channel, Credit Suisse bought loans from other lenders one-by-one or in small packages, and also itself extended loans to borrowers as “Wholesale” loans.  Approximately 25-35 percent of the loans Credit Suisse acquired from 2005 to 2007 were acquired through its mortgage “Conduit.”
• Credit Suisse employees discussed in internal emails that for Conduit loans, the loan review and approval process was “‘virtually unmonitored.’”  For loans Credit Suisse purchased through its Conduit, Credit Suisse told investors, ratings agencies and others, “‘Credit Suisse senior underwriters make final loan decisions, not contracted due diligence firms.’”  Credit Suisse has now acknowledged, “For Conduit loans, these representations were false.”
• Credit Suisse has acknowledged that “[a] September 2004 audit by Credit Suisse’s audit department gave the Conduit a C rating on an A-D scale (the second worst possible rating) and a level 4 materiality score on a 1-4 scale (the highest possible score),” and that a March 2006 evaluation by Credit Suisse of one of the third-party vendors it used to review Conduit loans “similarly reported that ‘There are serious concerns as to compliance[.]’”
• Between 2005 and 2007, Credit Suisse managers made comments in emails about the quality of Conduit loans and its process for reviewing those loans.  For example, a top Credit Suisse manager wrote to senior traders, “‘Of course we would like higher quality loans.  That’s never been the identity of our [mortgage] conduit, and we’re becoming less and less competitive in that space.’”  A senior Credit Suisse trader, discussing the “fulfillment centers” Credit Suisse used to review Conduit loans, stated in an email: ‘we make these underwriting exceptions and then we have liability down the road when the loans go bad and people point out that we violated our own guidelines. . . .  The fulfillment process is a joke.’”
• For example, in one instance Credit Suisse approved, through its Conduit, a purchase of over $700 million worth of loans originated by Resource Bank.  Credit Suisse senior traders “referr[ed] to Resource Bank loans as ‘complete crap’ and ‘[u]tter complete garbage.’”  Despite this, “Credit Suisse provided Resource Bank with financial ‘incentives’ in exchange for loan volume [and] securitized Resource Bank loans into various RMBS it then sold to investors.”
• Credit Suisse has acknowledged that it also “received reports from vendors that it might have been acquiring and securitizing loans with inflated appraisals” and that its approach for reviewing the property values associated with the mortgage loans “could lead to the acceptance of inflated appraisals.”  In August 2006, a Credit Suisse manager wrote to two senior traders, “How would investors react if we say that 20 percent of the pool have values off by 15 percent?  If we are comfortable buying these loans, we should be comfortable telling investors.”
• Credit Suisse used vendors to conduct quality control on a small subset of loans it acquired.  Credit Suisse has now acknowledged that its quality control review vendors reported that “more than 25 percent of the loans that they reviewed for quality control were designated ‘ineligible’ because of credit, compliance, and/or property defects.”
• Credit Suisse has now acknowledged that its “Co-Head of Transaction Management expressed concern that the quality control results could serve as a written record of defects, and sought to avoid documented confirmation of these defects.”  In May 2007, a top Credit Suisse manager met with others “to discuss implementing this reduction of quality control review.”  Credit Suisse’s Co-Head of Transaction Management wrote that “this change was to ‘avoid the previous approach by which a lot of loans were QC’d . . . creating a record of possible rep/warrant breaches in deals . . . .’”
• In another example, in May 2007, a Credit Suisse employee identified two wholesale loans Credit Suisse itself had originated and wrote, “‘I would think that we would want to see loans like these that seem to represent confirmed problems, especially on our own originations.  Why do we have an appraisal watch list and broker oversight group if we aren’t going to review the bad ones and take action appropriately? . . .  I just see so many of these cross my desk, fraud, value, etc., it’s hard to just let them go by and not do something.’”  Credit Suisse’s Co-Head of Transaction Management responded, “‘I think the idea is that we don’t want to spend a lot of $ to generate a lot of QC results that give us no recourse anyway but generate a lot of negative data, so no need to order QC on each of these loans.’”  The employee then stated, “‘I think the lack of interest in bad loans is scary.’”
• As another example, in June 2007, a Credit Suisse employee identified 44 Wholesale loans Credit Suisse had itself originated that had gone 60 days delinquent.  Credit Suisse’s Co-Head of Transaction Management wrote in response, “‘if we already know:  that the loans aren’t performing . . . the only thing QC will tell us is that there were compliance errors, occupancy misreps etc.  I think we already know we have systemic problems in FC/UW [fulfillment centers/underwriting] re both compliance and credit.  The downside of QC’ing these 44 loans is, after we get the QC results, we will be obligated to repurchase a fair chunk of the loans from deals, assuming the loans are securitized and the QC results look like the QC we’ve done in the past.  So based on a wholesale QC historical fail rate of over 35 percent (major rep defects), the avg bal of wholesale loans and the loss severities, it is reasonable to expect this QC may cost us a few million dollars.’”  Credit Suisse has now acknowledged that it “did not inform investors or ratings agencies that its Wholesale loan channel had a ‘QC historical fail rate of over 35 percent (major rep defects).’”
• Credit Suisse commented about the mortgage loans that accumulated in its inventory.  For example, Credit Suisse’s Co-Head of Transaction Management wrote to another Credit Suisse manager that “loans with potential defects ‘pile up in inventory . . . .  So my theory is: we own the risk 1 way or another. . . . I am inclined to securitize loans that are close calls or marginally non-compliant, and take the risk that we’ll have to repurchase, if we can’t put them back, rather than adding to sludge in inventory. . . .’  One of the senior traders responded, ‘Agree.’”  In another instance, a Credit Suisse senior trader commented in 2007 that “‘we have almost $2.5B of conduit garbage to still distribute.’”  In another instance, a Credit Suisse trader wrote to a top manager, discussing another bank to which Credit Suisse was seeking to sell loans from its inventory, and stated, “‘[The other bank] again came back with an embarrassing number of diligence kicks this month. . . .  If their results are in any way representative of our compliance with our reps and warrants, we have major problems.’  But rather than holding these loans in its own inventory, Credit Suisse securitized certain of these loans into its RMBS.”

Assistant U.S. Attorneys Kevin Traskos, Hetal J. Doshi, Shiwon Choe, Ian J. Kellogg, Lila M. Bateman, and J. Chris Larson of the District of Colorado investigated Credit Suisse’s conduct in connection with RMBS, with the support of the Federal Housing Finance Agency’s Office of the Inspector General (FHFA-OIG).

“Credit Suisse knowingly put investors at risk, and the losses caused by its irresponsible behavior deeply affected not only financial institutions such as the Federal Home Loan Banks, but also taxpayers, and contributed significantly to the financial crisis,” said Special Agent in Charge Catherine Huber of the Federal Housing Finance Agency-Office of Inspector General’s (FHFA-OIG) Midwest Region. “This settlement illustrates the tireless efforts put forth toward bringing a resolution to this chapter of the financial crisis. FHFA-OIG will continue to work with our law enforcement partners to hold those who have engaged in misconduct accountable for their actions.”

The $2.48 billion civil monetary penalty resolves claims under FIRREA, which authorizes the federal government to impose civil penalties against financial institutions that violate various predicate offenses, including wire and mail fraud.  The settlement expressly preserves the government’s ability to bring criminal charges against Credit Suisse or any of its employees.  The settlement does not release any individuals from potential criminal or civil liability.  As part of the settlement, Credit Suisse has agreed to fully cooperate with any ongoing investigations related to the conduct covered by the agreement.

Credit Suisse will pay out the remaining $2.8 billion in the form of relief to aid consumers harmed by its unlawful conduct.  Specifically, Credit Suisse agrees to provide loan modifications, including loan forgiveness and forbearance, to distressed and underwater homeowners throughout the country.  It also agrees to provide financing for affordable rental and for-sale housing throughout the country.  This agreement represents the most substantial commitment in any RMBS agreement to date to provide financing for affordable housing—a crucial need following the turmoil of the financial crisis.

The settlement is part of the ongoing efforts of President Obama’s Financial Fraud Enforcement Task Force’s RMBS Working Group, which has recovered tens of billions of dollars on behalf of American consumers and investors for claims against large financial institutions arising from misconduct related to the financial crisis.  The RMBS Working Group brings together attorneys, investigators, analysts and staff from multiple state and federal agencies, including the Department of Justice, U.S. Attorneys’ Offices, the FBI, the U.S. Securities and Exchange Commission (SEC), the Department of Housing and Urban Development (HUD), HUD’s Office of Inspector General, the FHFA-OIG, SIGTARP, the Federal Reserve Board’s OIG, the Recovery Accountability and Transparency Board, the Financial Crimes Enforcement Network and multiple state Attorneys General offices around the country.  The RMBS Working Group is led by Director Joshua Wilkenfeld and four co-chairs: Principal Deputy Assistant Attorney General Mizer, Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, Director Andrew Ceresney of the SEC’s Division of Enforcement, and New York Attorney General Eric Schneiderman.  This settlement is the latest in a series of major RMBS settlements announced by the Working Group.

To report RMBS fraud, go to: http://www.stopfraud.gov/rmbs.html.

17-085

Civil Division

Office of the Associate Attorney General

USAO – Colorado

Topic:

Financial Fraud

Mortgage Fraud

Securities, Commodities, & Investment Fraud

StopFraud

Download Settlement Agreement

Download Annex 1 — Statement of Facts

Download Annex 2 — Consumer Relief

Download Annex 3 — RMBS Covered by the Settlement

image: REUTERS/Christian Hartmann

CNBC-

Deutsche Bank agreed on Tuesday to pay $7.2 billion for misleading investors in its sale of residential mortgage-backed securities, among the largest resolutions of its kind.

The U.S. Justice Department said the settlement requires Germany’s largest lender to pay a $3.1 billion civil penalty under the Financial Institutions Reform, Recovery and Enforcement Act.

It will also provide $4.1 billion in relief to underwater homeowners, distressed borrowers and affected communities.

The Justice Department said it is “one of the largest FIRREA penalties ever paid.”

[CNBC]

A full reimbursement for clients who had ‘mortgage floors’ could cost banks billions in back payments

WSJ-

Spanish lenders might have to pay billions of euros back to borrowers after the European Union’s top court Wednesday ruled against the banks in a dispute over variable-rate mortgages.

The European Court of Justice ruled that borrowers in Spain are entitled to be fully reimbursed for excess interest payments on variable-rate mortgages. The ruling follows a 2013 decision by Spain’s top court that outlawed so-called “mortgage floors,” deeming them unfair to clients because banks didn’t clearly explain to borrowers the economic and legal consequences of having a downward limit on how far interest payments could fall.

However, the Spanish court ruling said banks had to stop enforcing the mortgage floors but didn’t have to reimburse clients for any excess interest payments before the date of the 2013 ruling. A full reimbursement, the judges wrote at the time, would have meant “a risk of serious disruption” to Spain’s economy.

[WALL STREET JOURNAL]

Benzinga-

Shares of Federal National Mortgage Assctn Fnni Me FNMA 6.67%and Federal Home Loan Mortgage Corp FMCC 7.15% have been all over the map in the past week following comments from newly-appointed Treasury Secretary Steven Mnuchin.

When asked about Fannie Mae and Freddie Mac, Mnuchin said the Trump administration has “got to get them out of government control.”

Fannie and Freddie were placed under government conservatorship when they required taxpayer $185 billion bailouts during the financial crisis.

[BENZINGA]

CNN Money-

Billionaire investor Wilbur Ross is President-elect Donald Trump’s pick for Commerce secretary, two sources tell CNN.

The nomination is expected to be rolled out as part of an economic team announcement on Wednesday, when Trump will likely name Steven Mnuchin as treasury secretary.

The Cabinet-level position, which requires Senate confirmation, serves as the government’s chief business advocate. The Commerce secretary is a liaison between companies and the White House. Ross could play a key role in what are expected to be Trump’s signature economic policy issues like trade and jobs.

[CNN MONEY]

image: Insider Monkey

Wall Street on Parade-

Yesterday, building on the momentum afforded her by a series of articles in the New York Times, Hillary Clinton asked the audience at a campaign stop in Toledo, Ohio: “What kind of genius loses a billion dollars in one year.” Clinton was referring to the New York Times revelation on Sunday that Donald Trump’s 1995 tax return showed a loss of $916 million. (See video clip below.)

If Hillary really wants to know what kind of genius can lose a billion dollars in one year or $6.2 billion in the case of traders at JPMorgan Chase, she should ask the bank’s CEO Jamie Dimon. The $6.2 billion London Whale loss at JPMorgan Chase is far more scintillating a feat since it involved wild derivative gambles in London in 2012 using the taxpayer-backstopped, insured savings deposits at the largest bank in the U.S. The U.S. Senate’s Permanent Subcommittee on Investigations conducted an in-depth investigation and report of the matter. The Chairman of the Subcommittee at the time, Senator Carl Levin, stated that JPMorgan “piled on risk, hid losses, disregarded risk limits, manipulated risk models, dodged oversight, and misinformed the public.”

continue reading WALL STREET ON PARADE

(Image Credit: AP/J. Scott Applewhite/Jason DeCrow/Photo montage by Salon)

MCLEAN, VA–(Marketwired – Oct 5, 2016) –  Freddie Mac (OTCQB: FMCC) today announced it sold via auction 5,364 deeply delinquent non-performing loans (NPLs) from its mortgage-related investments portfolio. The loans are currently serviced by either Wells Fargo Bank, N.A. or Ditech Financial, LLC. The transaction is expected to settle in December 2016, and servicing will be transferred post-settlement. The sale is part of Freddie Mac’s Standard Pool Offerings (SPO^®). Freddie Mac, through its advisors, began marketing the transaction on September 8, 2016, to potential bidders, including minority and women-owned businesses (MWOBs), non-profits, neighborhood advocacy funds and private investors active in the NPL market.

The loans were offered as four separate pools of geographically diverse mortgage loans. Investors had the flexibility to bid on each pool individually and/or a combination of pools. All four pools were sold at a weighted average price in the mid-70s as a percent of the total unpaid principal balance.

The loans have been delinquent for over two years, on average. Given the deep delinquency status of the loans, the borrowers have likely been evaluated previously for or are already in various stages of loss mitigation, including modification or other alternatives to foreclosure, or are in foreclosure. Mortgages that were previously modified and subsequently became delinquent comprise approximately 47.5 percent of the aggregate pool balance. The aggregate pool is geographically diverse and has a loan-to-value ratio of approximately 86 percent, based on Broker Price Opinion (BPO).

The pools and winning bidders are summarized below:

Advisors to Freddie Mac on the transaction were Wells Fargo Securities, LLC and First Financial Network, Inc., a woman-owned business.

Through the first half of 2016, Freddie Mac sold $5.3 billion in NPLs as part of its strategy to reduce the less liquid assets in its mortgage-related investments portfolio. Requirements guiding the servicing of these transactions are focused on improving borrower outcomes and stabilizing communities. In April 2016, Freddie Mac’s regulator, the Federal Housing Finance Agency, announced enhanced requirements [PDF] for NPL sales. Additional information about the company’s NPL sales is at http://www.freddiemac.com/npl/.

Bloomberg-

Illinois is joining California in suspending Wells Fargo & Co. from handling “billions” of dollars in investment work and the underwriting of state debt after the company admitted to opening potentially millions of bogus customer accounts.

Treasurer Michael Frerichs said in a statement the he will announce details of the ban during a news conference in Chicago on Monday. The suspension includes municipal-bond underwriting, according to Greg Rivara, a spokesman for the treasurer.

“In isolation, Illinois is not as significant as California, but its part of a mosaic that’s starting to take form,” Charles Peabody, a managing director at Compass Point Research LLC, said in a telephone interview, noting that it’s surprised industry watchers that the cross-selling scandal has begun to impact Wells Fargo’s corporate bank. “And the mosaic that’s being built out does not paint a bright picture for 2017 earnings.”

[BLOOMBERG]

United States Court of Appeals, Sixth Circuit.

OHIO PUBLIC EMPLOYEES RETIREMENT SYSTEM, on behalf of itself and all others similarly situated, Plaintiff-Appellant,

v.

FEDERAL HOME LOAN MORTGAGE CORPORATION; RICHARD F. SYRON; PATRICIA L. COOK; ANTHONY S. PISZEL; EUGENE M. MCQUADE, Defendants-Appellees.

No. 14-4189

    Decided: July 20, 2016

Before: GUY, KETHLEDGE, and STRANCH, Circuit Judges. COUNSEL ARGUED: W.B. Markovits, MARKOVITS, STOCK & DEMARCO, LLC, Cincinnati, Ohio, for Appellant. Jordan D. Hershman, MORGAN, LEWIS & BOCKIUS LLP, Boston, Massachusetts, for Appellees. ON BRIEF: W.B. Markovits, Christopher D. Stock, MARKOVITS, STOCK & DEMARCO, LLC, Cincinnati, Ohio, Richard S. Wayne, STRAUSS TROY CO., LPA, Cincinnati, Ohio, for Appellant. Jordan D. Hershman, Jason D. Frank, MORGAN, LEWIS & BOCKIUS LLP, Boston, Massachusetts, Hugh E. McKay, PORTER WRIGHT MORRIS & ARTHUR LLP, Cleveland, Ohio, for Appellee FHLMC. Mark D. Hopson, Frank R. Volpe, Judith C. Gallagher, SIDLEY AUSTIN LLP, Washington, D.C., for Appellee Syron. Carl S. Kravitz, Caroline E. Reynolds, ZUCKERMAN SPAEDER LLP, Washington, D.C., for Appellee Cook. James K. Goldfarb, Michael V. Rella, Jonathan Bashi, MURPHY & MCGONIGLE, P.C., New York, New York, Joseph C. Weinstein, William E. Donnelly, MURPHY & MCGONIGLE, P.C., Washington, D.C., Steven A. Delchin, SQUIRE PATTON BOGGS (US) LLP, Cleveland, Ohio, for Appellee Piszel. Michael S. Doluisio, Joseph S. McFarlane, DECHERT LLP, Philadelphia, Pennsylvania, Joseph C. Weinstein, Stephen A. Delchin, SQUIRE PATTON BOGGS (US) LLP, Cleveland, Ohio, for Appellee McQuade.

OPINION

Lead Plaintiff Ohio Public Employees Retirement System (OPERS) filed a class action suit alleging securities fraud against Federal Home Loan Mortgage Corporation and four senior officers (collectively Freddie Mac). The district court granted Defendants’ motions to dismiss, concluding that OPERS failed to show loss causation. For the reasons stated below, we REVERSE the district court’s dismissal of the third amended complaint and REMAND for further proceedings consistent with this opinion.

I. BACKGROUND

This lawsuit was brought by a state pension fund serving Ohio public employees that lost significant value in the wake of the sharp decline in the price of Freddie Mac’s stock in late 2007. OPERS alleges that Freddie Mac concealed its overextension in the nontraditional mortgage market—generally composed of instruments known as subprime mortgages or low credit and high risk instruments—and its materially deficient underwriting, risk management and fraud detection practices through misstatements and omissions to investors. It alleges that the fund suffered foreseeable losses triggered when the risk that had been concealed materialized.

OPERS is a state pension fund that provides retirement, disability, survivor and health care benefits, and services for Ohio public employees. R. 166, ¶18. It is the fourteenth-largest retirement system in the United States and its assets fund the benefits for more than 920,000 members. Id. OPERS alleges that it purchased shares of Freddie Mac common stock between August 1, 2006, and November 20, 2007 (the class period), id., and that the value of those shares plummeted when the risks in Freddie Mac’s investments, risk management system, financial condition and results were revealed, id. at ¶¶270, 271.

Freddie Mac is a government sponsored entity chartered by Congress that operates in the secondary mortgage market. Id. at ¶19. Individual Defendants are former Chairman of the Board and Chief Executive Officer Richard F. Syron, id. at ¶20, former Chief Business Officer and Executive Vice President for Investments and Capital Markets Patricia L. Cook, id. at ¶21, former Executive Vice President and Chief Financial Officer Anthony S. Piszel, id. at ¶22, and former President and Chief Operating Officer Eugene M. McQuade, id. at ¶23.

As this appeal arises from dismissal of OPERS’s third amended complaint (the Complaint), we draw the facts from the allegations therein. We recount the facts relevant to an examination of the loss causation element of securities fraud, which formed the basis of the district court’s dismissal. They are stated here only as needed for our examination.

A. Risk in the Nontraditional Mortgage Market

Congress chartered Freddie Mac in 1970 to maintain liquidity in the secondary market for residential mortgage lending. Id. at ¶1. As a government sponsored entity, Freddie Mac’s business is limited by statute to the purchase of home mortgages and mortgage-related securities. See 12 U.S.C. § 1454(a)(1). It has become one of the largest purchasers of mortgages in the nation. R. 166, ¶25.

Freddie Mac operates its extensive mortgage securitization business in three segments. The primary business segment is the “single family” or “guarantee” portfolio, which guarantees the payment of principal and interest on residential mortgages that it purchases in the secondary market. Id. The mortgages are then securitized as Freddie Mac mortgage-backed securities for sale on the capital markets. Id. Freddie Mac also operates a multifamily segment, id., and an investment segment with a retained portfolio, id. at ¶86.

Freddie Mac funds its purchases by issuing short and long-term debt and preferred stock offerings. Id. at ¶26. It monitors loan quality through its proprietary automated underwriting system Loan Prospector. Id. at ¶28. Based on credit risk scores, the system divides loans into six grades, available to Freddie Mac but not the public, that estimate the risk of default. Id. at ¶¶29-31. The four highest grades (A+, AI, A2, and A3, or collectively “Accept Loans”), permit automated underwriting without special representations or warranties from the loan originator. Id. at ¶¶31-32. Loan Prospector’s two lower grades (CI and C2, or collectively “Caution Loans”) carry multiple higher risk characteristics and are manually underwritten with additional documentation, representations, and warranties. Id. at ¶¶31, 33.

As loan activity declined in the mid-2000s, large mortgage producers began to market nontraditional mortgages aggressively to counteract the slowdown. Id. at ¶40. While these products carried a higher likelihood of default, they also earned higher fees than prime mortgages. R. 298-2, PageID 12479. Freddie Mac participated actively in this new arena to maintain its position as a market leader. OPERS alleges that when Freddie Mac’s internal quality control systems hindered its ability to transact in nontraditional mortgages, these systems were disregarded or adjusted to allow for riskier purchases, as set forth in detail below.

First, Freddie Mac pursued increasingly permissive purchasing strategies that focused on low credit, high risk mortgages, R. 166, ¶¶51, 53-54, and targeted low-to-moderate income borrowers, to acquire loans that were internally considered “subprime-like,” id. at ¶61. To increase its purchase of whole loan portfolios and compete more effectively with private issuers, Freddie Mac entered auctions for the sale of loans in bulk. Id. at ¶¶54-55. It also guaranteed an increasing number of low quality Expanded Approval (EA) loans from Fannie Mae, id. at ¶61, as well as from banks known for poor loan quality, id. at ¶¶70-72. As Freddie Mac’s purchase pace outgrew its own underwriting capabilities, it increasingly relied on the underwriting systems of third parties, which routinely assigned artificially high quality designations to loans that would have been considered subprime if internally underwritten. Id. at ¶¶73, 75, 130. OPERS alleges that the more loans Freddie Mac accumulated, the larger the bonuses of Individual Defendants. Id. at ¶53.

Second, the boom in Freddie Mac’s acquisition of nontraditional mortgages led to less stringent institutional review and circumvention of its own underwriting standards. The Complaint cites a confidential source, a Senior Director of IT for Freddie Mac’s Analytics and Risk Management groups, who recounted that the practice of granting exceptions to otherwise noncompliant loans became so common that a Director of Credit Risk Policy inquired, “Why do we even have a credit risk policy if we allow more exceptions than we have compliance?” Id. at ¶59. Ratings agencies were unaware of this practice and awarded mortgage pools artificially high ratings as a result. Id. at ¶60.

Third, Freddie Mac’s exposure was aggravated by its reliance on antiquated evaluative software and fraud detection measures, which could not keep up with the changes to Freddie Mac’s portfolio. Id. at ¶96. These deficiencies compromised data quality controls and reporting capability both within Freddie Mac and publicly. Id. at ¶¶96-97. Though identified internally in late 2005, id. at ¶96, the shortcomings of Freddie Mac’s legacy software were not remedied during the class period, id. at ¶98.

In combination, OPERS claims, Freddie Mac’s permissive purchasing strategies, relaxation of underwriting standards, and deficient evaluation and fraud detection software hastened the deterioration of its single family portfolio. Investment in low quality CI loans grew from approximately $40 billion during the first quarter of 2005 to almost $120 billion at the end of 2007. Id. at ¶37. Investment in even lower quality C2 loans grew from around $35 billion to nearly $100 billion in the same period. Id. OPERS alleges that by the end of the class period, Freddie Mac had exposed almost $227 billion of its loan portfolio to risk from subprime and other low credit quality products. Id. All the while, according to OPERS, the Individual Defendants procured advantageous personal compensation plans and bonuses, exercised stock options, and implemented insider trading incentives. Id. at ¶¶7, 52-53, 211, 238-50.

B. Increasing Risk Exposure

OPERS contends that Freddie Mac was internally aware of the risks associated with its accumulation of nontraditional mortgage products from the beginning, id. at ¶46, and used the lack of uniformity among definitions of “subprime” and “Alt-A” to mislead investors. Freddie Mac’s external statements differed from its internal reports, id. at ¶256(a)-(b), and it used a “deceptive[ly]” narrow definition of subprime in public disclosures that made it “difficult for even sophisticated investors to understand the negative implications of the financial information,” id. at ¶256(c). Investors’ misconceptions were further reinforced by a steady stream of false assurances and mischaracterizations from Freddie Mac’s senior officials, including the Individual Defendants. Id. According to Freddie Mac’s 2007 Second Quarter Report, “approximately $2 billion, or 0.1 percent ? of loans underlying our single-family mortgage portfolio, at June 30, 2007 ? were classified as subprime mortgage loans.” Id. at ¶182. OPERS alleges that at the time, the single family portfolio “consisted of approximately $182 billion of C1, C2 and EA loans, which equated to approximately 12% of Freddie Mac’s single-family credit guarantee portfolio.” Id. Freddie Mac first publicly reported its Alt-A loan exposure in June 2007, when it estimated that Alt-A loans (loans identified as such by the originator or with reduced documentation, id. at ¶88), made up less than 10% of Freddie Mac’s portfolio, id. at ¶87. According to OPERS, reduced documentation loans actually constituted 29% of the single family portfolio. Id. at ¶90. As further support for its allegations concerning concealed risk, OPERS offers additional evidence of risk materialization that became available after the close of the class period, including Freddie Mac’s subsequent disclosure “that the percentage of loans to borrowers with FICO scores below 620, the percentage of loans with [loan-to-value] ratios above 90%, and the percentage of loans used to refinance a mortgage other than a cash-out refinance, had all increased 50% over the comparable period in 2006.” Id. at ¶102.

As the skies above the subprime market began to darken, Freddie Mac dismissed news reports forecasting trouble. However, on November 20, 2007, the last day of the class period, OPERS contends that the truth of Freddie Mac’s exposure was finally revealed in the Third Quarter Financial Results and accompanying press statement. R. 298-42. OPERS alleges that this marks the first public disclosure of accurate information previously obscured through misstatements and omissions, namely:

(a) that [Freddie Mac] in fact had heretofore unrevealed substantial involvement in the nontraditional low credit mortgage industry;

(b) that at least $200 billion of its $700 billion mortgage portfolio was at high risk of substantial losses; and

(c) that for just the 3 months ending September 20, 2007, Freddie Mac had incurred a record $2 billion loss on its mortgage investments, with more significant losses expected.

R. 166, ¶134. OPERS concludes that “the business of Freddie Mac was far riskier than Defendants had disclosed, and investors were incapable of measuring accurately the true financial performance and risk of Freddie Mac’s business.” Id. at ¶138(h).

Freddie Mac alleges that when the unanticipated revelations materialized, common stock plunged 29% or $3.29 per share—from $37.50 to $26.74. Id. at ¶191. The market capitalization loss to shareholders totaled $6.6 billion. Id. Freddie Mac continued to suffer dramatic losses in the coming year. Subsequent reports placed its actual net loss for the fourth quarter of 2007 at $3.7 billion. Id. at ¶228. OPERS alleges that this loss was primarily related to subprime, Alt-A, and other nontraditional credit losses from loans purchased between 2005 and 2007. Id. In September 2008, the Secretary of the United States Treasury placed Freddie Mac in government conservatorship. Id. at ¶232.

C. Procedural History

OPERS filed a securities fraud class action on behalf of purchasers of Freddie Mac common stock in January 2008, alleging that Freddie Mac violated §§ 10(b) and 20(a) of the Securities Exchange Act of 1934 and Securities and Exchange Commission (SEC) Rule 10b-5. R. 1. It filed a first amended complaint in May 2008, R. 22, which Freddie Mac unsuccessfully moved to dismiss the following September, R. 42. OPERS’s second amended complaint, R. 56, likewise withstood Freddie Mac’s second motion to dismiss, R. 63, 126. The district court also denied Freddie Mac’s motion to dismiss OPERS’s (third) Complaint. R. 184. However, in April 2013, the presiding judge recused himself and the case was reassigned.

At this juncture, the district court granted Freddie Mac leave to file a renewed motion to dismiss, R. 281, and granted the subsequent motion with prejudice, concluding that OPERS failed to adequately plead loss causation, R. 330, PageID 15908. The district court’s order also denied OPERS’s fourth motion to amend its complaint. Id. at 15909. OPERS argues on appeal that the district court erred by granting the motion to dismiss, rejecting the materialization of the risk theory of loss causation, and misapplying the corrective disclosure theory. (Appellant Br. at 3-4.)

II. ANALYSIS

A. Standard of Review

The district court’s order granting a Rule 12(b)(6) motion to dismiss is reviewed de novo. Winget v. JP Morgan Chase Bank, N.A., 537 F.3d 565, 572 (6th Cir. 2008). We construe the complaint in the light most favorable to the plaintiff, accept all well-pleaded factual allegations as true, and examine whether the complaint contains “sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’?” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. (citing Twombly, 550 U.S. at 556). This standard “does not impose a probability requirement at the pleading stage; it simply calls for enough fact to raise a reasonable expectation that discovery will reveal evidence of illegal [conduct].” Twombly, 550 U.S. at 556.

The court “consider[s] the complaint in its entirety, as well as ? documents incorporated into the complaint by reference, and matters of which a court may take judicial notice.” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007); see also Weiner v. Klais & Co. Inc., 108 F.3d 86, 89 (6th Cir. 1997) (noting documents that a defendant attaches to a motion to dismiss are also considered part of the pleadings if referred to in the complaint and central to the claim). Denial of leave to amend is generally reviewed for abuse of discretion. Sec. Ins. Co. of Hartford v. Kevin Tucker & Assocs., Inc., 64 F.3d 1001, 1008 (6th Cir. 1995). However, when a district court denies a motion to amend based on the determination that the amended pleading would not withstand a motion to dismiss, we review the decision de novo. Demings v. Nationwide Life Ins. Co., 593 F.3d 486, 490 (6th Cir. 2010).

Issues not examined by the district court are ordinarily not considered on appeal. See e.g., Singleton v. Wulff, 428 U.S. 106, 120 (1976) (“It is the general rule, of course, that a federal appellate court does not consider an issue not passed upon below.”). In light of this rule, and the fact-intensive questions that remain in this case, we limit our review to that considered by the district court, namely, whether OPERS has sufficiently alleged loss causation at the pleading stage. R. 330, PageID 15908. In so doing, we express no opinion on the ultimate merits of the securities fraud claims.

B. Legal Standards

Section 10(b) of the Securities Exchange Act provides a right of action to purchasers or sellers of securities. 15 U.S.C. § 78j(b). It forbids the “use or employ, in connection with the purchase or sale of any security ? [of] any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the [SEC] may prescribe as necessary or appropriate in the public interest or for the protection of investors.” Id. This section is implemented through Rule 10b-5, which proscribes, among other things, “the making of any ‘untrue statement of material fact’ or the omission of any material fact ‘necessary in order to make the statements made ? not misleading.’?” Dura Pharm., Inc. v. Broudo, 544 U.S. 336, 341 (2005) (quoting 17 C.F.R. § 240.10b-5) (alterations in original). The right of action provided to the purchasers and sellers of securities through the Securities Exchange Act resembles common law tort actions for deceit and misrepresentation, though it is not identical. Id.

A prima facie securities fraud action under § 10(b) and SEC Rule 10b–5 requires a plaintiff to allege: “(1) a material misrepresentation or omission by the defendant; (2) scienter; (3) a connection between the misrepresentation or omission and the purchase or sale of a security; (4) reliance upon the misrepresentation or omission; (5) economic loss; and (6) loss causation.” In re Omnicare, Inc. Sec. Litig., 769 F.3d 455, 469 (6th Cir. 2014) (quoting Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27, 37-38 (2011)). Federal Rule of Civil Procedure 9(b) heightens the general “short and plain statement” pleading standard of Rule 8(a)(2) for a complaint alleging fraud or mistake, which must be stated with particularity. The Private Securities Litigation Reform Act of 1995 (PSLRA) further heightened the pleading standard by requiring private securities complaints containing allegations of false or misleading statements to both “specify each statement alleged to have been misleading [and] the reason or reasons why the statement is misleading” and “state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind.” 15 U.S.C. §?78u-4(b)(1)(B), (b)(2)(A).

C. Theories of Loss Causation

A party that brings a securities fraud claim bears the burden to prove “that the act or omission of the defendant alleged to violate this chapter caused the loss for which the plaintiff seeks to recover damages.” 15 U.S.C. § 78u-4(b)(4). This is “not meant to impose a great burden upon a plaintiff,” but to “provide a defendant with some indication of the loss and the causal connection that the plaintiff has in mind.” Dura Pharm., 544 U.S. at 347; see also id. at 346 (“[W]e assume, at least for argument’s sake, that neither the Rules nor the securities statutes impose any special further requirement in respect to the pleading of proximate causation or economic loss.”). At the dismissal stage, it is sufficient that OPERS’s allegations be plausible—no final determination of amount of loss or its cause is required. See In re Fannie Mae 2008 Sec. Litig., 891 F. Supp. 2d 458, 478 (S.D.N.Y. 2012) (denying defendant Fannie Mae’s motion to dismiss stockholders’ § 10(b) and Rule 10b-5 claims because, in part, stockholders adequately alleged their investment loss was caused by misstatements of risk management controls).

“Loss causation is the causal link between the alleged misconduct and the economic harm ultimately suffered by the plaintiff.” Lentell v. Merrill Lynch & Co., 396 F.3d 161, 172 (2d Cir. 2005) (internal quotation marks omitted). It partakes of the traditional elements of loss and proximate causation. See Dura Pharm., 544 U.S. at 346. Any analogy to the common law tort concept, however, would be imperfect because the alleged misstatements do not generally cause a security to drop in value, but rather, the “underlying circumstance that is concealed or misstated.” Lentell, 396 F.3d at 173. Thus, in the securities fraud context, “a misstatement or omission is the ‘proximate cause’ of an investment loss if the risk that caused the loss was within the zone of risk concealed by the misrepresentations and omissions alleged by a disappointed investor.” Id. (emphasis in original).

This court has acknowledged in an unpublished decision that loss causation can be shown through a corrective disclosure. See In re KBC Asset Mgmt. N.V., 572 F. App’x 356, 360 (6th Cir. 2014). Under the corrective disclosure theory, a plaintiff alleges “cause-in-fact on the ground that the market reacted negatively to a corrective disclosure of fraud.” In re Omnicom Grp., Inc. Sec. Litig., 597 F.3d 501, 511 (2d Cir. 2010). A decisive majority of circuits have also recognized the alternative theory of materialization of the risk, whereby a plaintiff may allege “proximate cause on the ground that negative investor inferences,” drawn from a particular event or disclosure, “caused the loss and were a foreseeable materialization of the risk concealed by the fraudulent statement.” Id.; see also In re Harman Int’l Indus., Inc. Sec. Litig., 791 F.3d 90, 110 (D.C. Cir. 2015); McCabe v. Ernst & Young, LLP, 494 F.3d 418, 428-29 (3d Cir. 2007); Teachers’ Ret. Sys. of La. v. Hunter, 477 F.3d 162, 187-88 (4th Cir. 2007); Lormand v. US Unwired, Inc., 565 F.3d 228, 258 (5th Cir. 2009); Ray v. Citigroup Glob. Mkts., Inc., 482 F.3d 991, 995 (7th Cir. 2007); Schaaf v. Residential Funding Corp., 517 F.3d 544, 550 (8th Cir. 2008); Nuveen Mun. High Income Opportunity Fund v. City of Alameda, 730 F.3d 1111, 1120 (9th Cir. 2013); Nakkhumpun v. Taylor, 782 F.3d 1142, 1156 (10th Cir. 2015), cert. denied, 136 S. Ct. 499 (2015).

When considering Freddie Mac’s motion to dismiss, the district court rejected OPERS’s materialization of the risk argument, stating that it was a “theory not adopted by the Sixth Circuit or persuasive to the Court.” R. 330, PageID 15907. While we have not yet considered this issue directly, our prior decisions, both controlling and unpublished, recognize the viability of alternative theories of loss causation. See In re KBC Asset Mgmt. N.V., 572 F. App’x at 360 (implicitly recognizing alternative theories as “loss causation is ‘easiest to show when a corrective disclosure reveals the fraud to the public and the [company’s share] price subsequently drops’?”) (alteration in original); Ind. State Dist. Council of Laborers v. Omnicare, Inc., 583 F.3d 935, 944 (6th Cir. 2009) (observing that a single sentence in an article reporting defendants’ “struggles to overcome major glitches” was insufficient to satisfy plaintiff’s burden to “show that an economic loss occurred after the truth behind the misrepresentation or omission became known to the market”).

We are mindful of the dangerous incentive that is created when the success of any loss causation argument is made contingent upon a defendant’s acknowledgement that it misled investors. Our sister circuits are too and have recognized that defendants accused of securities fraud should not escape liability by simply avoiding a corrective disclosure. See Mass. Ret. Sys. v. CVS Caremark Corp., 716 F.3d 229, 240 (1st Cir. 2013) (reasoning by reference to a Fifth Circuit case, that “a defendant’s failure to admit to making a misrepresentation, or his denial that a misrepresentation was made” should not shield him in the loss causation analysis, lest he avoid liability by simply refusing to concede that a prior misstatement was false).

In light of our applicable precedent and the clear weight of persuasive authority, we join our fellow circuits in recognizing the viability of alternative theories of loss causation and apply materialization of the risk in this case.

D. Materialization of the Risk

Freddie Mac asserts that even if the court recognizes materialization of the risk as a viable theory, OPERS has failed to sufficiently allege loss causation. First, as the district court noted, Freddie Mac’s quarterly and annual disclosures did provide a description of its assumption of risk. R. 330, PageID 15901. As explicitly stated in Freddie Mac’s 2006 Annual Report,

To improve our ability to better fulfill our mission, we have increased our participation in nontraditional mortgage market products. ?

Product mix affects the credit risk profile of our Total mortgage portfolio. ?

? We expect each of these products to default more often than traditional products and we consider this when determining our credit and guarantee fees. ? We will continue to monitor the growth of these products in our portfolio and, if appropriate, may seek credit enhancements to further manage the incremental risk.

R. 298-2, PageID 12478-79.

These statements, however, mean little if OPERS’s allegations of systemic mismanagement within Freddie Mac are to be believed—as all well-pleaded allegations must be at this stage. Freddie Mac’s financial reports highlighted rigorous underwriting requirements and quality control standards as key focus areas for management of credit risk. Id. at 12476. All the while, OPERS contends, and we accept as true, Freddie Mac disregarded its internal controls through such practices as artificial inflation of property values to lower loan-to-value ratios, R. 166, ¶¶62-63, excessive application of exceptions to otherwise non-qualifying loans, id. at ¶59, purchase of increasingly risky products, id. at ¶¶51-55, 72-73, and reliance on outdated evaluative software and fraud detection measures, id. at ¶¶96-99, 108-12.

OPERS alleges to be untrue Freddie Mac’s assertion that the quantitative data in its financial reports gave investors an accurate picture of its risk exposure. As explained above, Freddie Mac claimed that .01% of the loans in its single family portfolio were subprime, while OPERS alleges this number is closer to 12% when low quality loans like CI, C2, and EA are considered. Id. at ¶182. It also alleges that Freddie Mac made no public disclosure of its Alt-A holdings until June 2007, well into the class period, reporting that they made up 8% or $120 billion of the portfolio when such loans actually consisted of $462 billion or 29% of the portfolio. Id. at ¶87-90. As the Supreme Court observed in the context of a separate section of the Securities Exchange Act, “not every mixture with the true will neutralize the deceptive.” Va. Bankshares, Inc. v. Sandberg, 501 U.S. 1083, 1097 (1991). “If it would take a financial analyst to spot the tension between the one and the other, whatever is misleading will remain materially so, and liability should follow.” Id.

In a similar case, SEC v. Mudd, the court found that regular financial reports did not sufficiently correct defendants’ alleged misstatements to investors regarding Fannie Mae’s level of subprime exposure. 885 F. Supp. 2d 654, 666-67 (S.D.N.Y. 2012). Like Freddie Mac’s financial reports, those considered in Mudd measured loans based on borrowers’ FICO scores and loan-to-value ratios. Id. However, defendants’ reports “did not define subprime loans” by these metrics, nor did they measure loans by adequacy of documentation to show Alt-A exposure. Id. at 667. The court found it was “not clear that this data would have corrected, clarified, or rendered immaterial [Fannie Mae’s] subprime exposure calculations.” Id. In holding that defendants’ disclaimers and warnings did not preclude liability, the court quoted the Second Circuit’s conclusion that “[c]autionary words about future risk cannot insulate from liability the failure to disclose that the risk has transpired.” Id. (quoting Rombach v. Chang, 355 F.3d 164, 173 (2d Cir. 2004)).

In addition to inaccurate quantitative data, the Complaint also alleged instances of Freddie Mac’s internal recognition that its public statements regarding exposure were misleading. For example, in May 2007, the then-Head of External Reporting reviewed a draft speech to be delivered by Syron at the UBS Global Financial Services Conference. He suggested in an email that references to subprime loan exposure be refined:

We need to be careful how we word this. Certainly our portfolio includes loans that under some definitions would be considered subprime. Look back at the subprime language in the annual report and use that as a guide as what to say. Basically, we say we don’t have a definition of subprime and we don’t acquire loans from subprime lenders. We should reconsider making as sweeping a statement as we have “basically no subprime exposure.”

R.166, ¶83. This advice was rejected, however, and at the conference a few days later, Syron included the original language in his speech: “As we discussed in the past, at the end of 2006, Freddie had basically no subprime exposure in our guarantee business, and about $124 billion of AAA rated subprime exposure in our retained portfolio.” Id. at ¶84 (emphasis added). Cook repeated this statement a few days later when she delivered a speech at the Lehman Brothers Tenth Annual Financial Services Conference. Id. at ¶85. The Complaint details many additional communications to investors to the same effect. See e.g., id. at ¶¶140-43, 156, 164, 177.

Freddie Mac draws our attention to Central States, Southeast and Southwest Areas Pension Fund v. Federal Home Loan Mortgage Corp., 543 F. App’x 72 (2d Cir. 2013), which it characterizes as “virtually identical” to the present case. In an unpublished opinion, the Second Circuit affirmed the dismissal of investors’ claim against Freddie Mac for failure to meet the pleading requirements for loss causation. Id. at 77. The Central States investors purchased Freddie Mac stock during a class period that ran from November 20, 2007, to September 7, 2008, the day it was announced that Freddie Mac would be placed into conservatorship. Id. at 73. The court rejected investors’ loss causation argument that the stock price fell after news articles and independent analyst reports in 2008 revealed that Freddie Mac’s prior statements claiming it was “adequately capitalized and had sufficient internal controls” were false. Id. at 74.

That case, though not controlling in the Sixth Circuit and factually distinguishable, lends support to our conclusions. November 20, 2007, is indeed a familiar date but it stands at the beginning of the class period in Central States; here it stands as the end of the class period. That makes all the difference. The court in Central States emphasized that on the first day of its class period, Freddie Mac “reported a loss of more than $2 billion, causing its stock price to fall from $37.50 at the close of trading on November 19 to $26.74 at the close of trading on November 20.” Id. On that day, Freddie Mac also disclosed “its increased involvement in nontraditional mortgage markets and the ‘greater credit risks’ from ‘increased delinquencies and credit losses’ involving nontraditional mortgage products.” Id. Given these disclosures, the court reasoned, investors could not “plausibly allege that they were not on notice of the true gravity of Freddie’s situation until corrective disclosures began to be published on July 3, 2008.” Id. at 74-75. Based on the class period in the present case, OPERS could and did plausibly allege that it was not on notice. OPERS’s position differed from that of Central States, as it had purchased stock before November 20 under the misimpression (allegedly fostered by Freddie Mac) that Freddie Mac adequately protected its higher-risk purchases, had virtually no subprime exposure, and enjoyed more success than its competitors. The subsequent revelation of loss on the November 20 close of this class is well within the “zone of risk” that Freddie Mac allegedly concealed here. Lentell, 396 F.3d at 173.

Based on the allegations detailed above, OPERS’s claims can be summarized as follows: Freddie Mac made materially false statements and omissions regarding its extension into the nontraditional mortgage market and its financial health. R. 166, ¶¶270-71. When these risks were realized, the market price of Freddie Mac stock dropped dramatically. Had OPERS known the truth, it would not have invested in Freddie Mac common stock, or would have done so at a much lower purchase price. Id. at ¶270. OPERS concludes that the 29% loss in stock price that occurred on November 20, 2007, when Freddie Mac disclosed a loss of $2 billion, is “directly attributable to the market’s reaction to revelations of the nature, extent, and impact of the fraud at Freddie Mac.” Id. at ¶271.

We are not persuaded by Freddie Mac’s argument that OPERS fails to “plead [?] facts sufficient to exclude more likely explanations for its alleged losses, such as the worst financial crisis since the Great Depression.” (Appellee Federal Home Loan Mortgage Corporation Br. at 51.) OPERS need only allege sufficient facts to support a plausible claim—not the most likely—at this stage. See Twombly, 550 U.S. at 570. Having considered “the relationship between the risks allegedly concealed and the risks that subsequently materialized,” as well as the close correlation between the alleged revelation or materialization of the risk and the immediate fall in stock price, we conclude that it has done so. In re Am. Intern. Grp., Inc. 2008 Sec. Litig., 741 F. Supp. 2d 511, 534 (S.D.N.Y. 2010).

When considering a motion to dismiss, “we must tread lightly ? engaging carefully with the facts of a given case and considering them in their full context.” In re Omnicare, 769 F.3d at 473. Taking the allegations in the Complaint as true and drawing all reasonable inferences in OPERS’s favor, we conclude that OPERS has sufficiently alleged loss causation to survive a Rule 12(b)(6) motion to dismiss.

III. CONCLUSION

Based on the foregoing reasoning, we REVERSE the district court’s dismissal of OPERS’s Complaint and REMAND for further proceedings consistent with this opinion.

JANE B. STRANCH, Circuit Judge.

Reuters-

A U.S. appeals court on Monday threw out a jury’s finding that Bank of America Corp was liable for mortgage fraud leading up to the 2008 financial crisis, voiding a $1.27 billion penalty and dealing the U.S. Department of Justice a major setback.

The 2nd U.S. Circuit Court of Appeals in New York found insufficient proof under federal fraud statutes to establish Bank of America’s liability over a mortgage program called “Hustle” run by the former Countrywide Financial Corp.

The Justice Department claimed Countrywide, which Bank of America bought in July 2008, defrauded government-sponsored mortgage financiers Fannie Mae and Freddie Mac by selling them thousands of toxic loans.
[REUTERS]

The penalty might sound pretty stiff. But get a load of the real math.

New Republic-

“Recently Goldman Sachs reached a settlement with the federal government for $5 billion because they were selling worthless packages of subprime mortgages,” Bernie Sanders shouted (as he does) in the last Democratic presidential debate. “If you are a kid caught with marijuana in Michigan, you get a police record. If you are an executive on Wall Street that destroys the American economy, you pay a $5 billion fine, no police record.”

This lack of accountability for Wall Street and the perception of a two-tiered justice system gnaws away at Americans’ trust. But now that the Goldman Sachs settlement Sanders referred to has been finalized, I’m sorry to say that he was wrong. If you are an executive on Wall Street who destroys the American economy, you don’t pay a $5 billion fine. You pay much, much less. In fact, you can make a credible case that Goldman won’t pay a fine at all. They will merely send a cut of profits from long-ago fraudulent activity to a shakedown artist, also known as U.S. law enforcement.

The Justice Department announcement in the Goldman case states that between 2005 and 2007, the investment bank marketed and sold mortgage-backed securities to investors that were of lower quality than promised. As a result, Goldman will pay a $2.385 billion civil penalty to the Justice Department, $875 million resolving claims from other state and federal agencies, and $1.8 billion in so-called “consumer relief” measures, like forgiving principal on loans and providing financing for affordable housing. That’s where the much-touted $5 billion figure comes from.

[NEW REPUBLIC]

• Español

source: http://www.ag.ny.gov/

Reuters-

Bank of New York Mellon Corp must face a lawsuit seeking to hold it liable for causing $1.12 billion of investor losses by failing to properly monitor five trusts backed by toxic residential mortgages, a Manhattan federal judge ruled.

U.S. District Judge Gregory Woods said Belgium’s Royal Park Investments SA/NV may pursue claims that the bank, as trustee for trusts dating from 2005 to 2007, ignored widespread, systemic abuse in how the underlying loans were underwritten and serviced, and failed to require that bad loans be repurchased.

“Indeed,” Woods wrote in his decision on Wednesday, “it would be implausible to assume that somehow all of the mortgage loans underlying the trusts miraculously avoided the pervasive practices of the industry at the time.”

[REUTERS]

What about the homeowners who were equally screwed??

NYT-

Wells Fargo has agreed to pay $1.2 billion to put to rest claims that it engaged in reckless lending under a Federal Housing Administration program that left a government insurance fund to clean up the mess.

The bank, which is the nation’s largest mortgage lender, has been in talks with the government since 2012 over accusations that it improperly classified some F.H.A. loans as qualifying for federal insurance when they did not, and that it knew of the misclassification but failed to inform housing regulators about the deficiencies before filing insurance claims.

Wells Fargo, based in San Francisco, had been a holdout among large lenders. Citigroup, Bank of America and JPMorgan Chase all previously settled similar claims.

[NEW YORK TIMES]

AP-

Goldman Sachs said Thursday it had reached a roughly $5 billion settlement as part of a federal and state probe into its role in the sale of mortgages in the years leading up into the housing bubble and subsequent financial crisis.

It is by far the largest settlement the investment bank has reached related to its role in the crisis, but the payment dwarfs the payments made by some of its Wall Street counterparts.

Goldman will pay $2.39 billion in civil monetary penalties, $875 million in cash payments and provide $1.8 billion in consumer relief in the form of mortgage forgiveness and refinancing as part of the agreement. The U.S. Department of Justice, the attorneys general of Illinois and New York and other regulators who are part of the settlement have not officially signed off on the deal, which could take some time.

[AP]

REUTERS-

Pacific Investment Management Co and other investors have sued Citigroup Inc over the bank’s alleged failure to properly monitor toxic securities backed by more than $13.8 billion of mortgage loans, resulting in $2.3 billion of losses.

According to a complaint filed Tuesday night in a New York state court in Manhattan, Citigroup breached its duties as trustee for the 25 private-label trusts dating from 2004 to 2007 by ignoring “pervasive and systemic deficiencies” in how the underlying loans were underwritten or being serviced.

The investors said Citigroup looked askance at the loans’ “abysmal performance” out of fear it might “jeopardize its close business relationships” with loan servicers including Wells Fargo & Co and JPMorgan Chase & Co, or prompt them to retaliate over its own problem loans.

Read more at Reuters http://www.reuters.com/article/2015/11/25/us-citigroup-pimco-lawsuit-idUSKBN0TE2MC20151125#0ZRYzAJDKTxDW2J5.99