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Ohio Public Employees Retirement System et al v. Federal Home Loan Mortgage Corp et al, 6th U.S. Circuit Court of Appeals, No. 14-4189 |  Freddie Mac of defrauding the state’s $87.3 billion public pension fund by hiding its exposure to subprime

Ohio Public Employees Retirement System et al v. Federal Home Loan Mortgage Corp et al, 6th U.S. Circuit Court of Appeals, No. 14-4189 | Freddie Mac of defrauding the state’s $87.3 billion public pension fund by hiding its exposure to subprime


United States Court of Appeals, Sixth Circuit.

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



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.


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.


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.)


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.


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.

© 2010-17 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.


Bank of America $1.27 billion U.S. mortgage penalty is voided

Bank of America $1.27 billion U.S. mortgage penalty is voided


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.


© 2010-17 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.


Why the Goldman Sachs Settlement Is a $5 Billion Sham

Why the Goldman Sachs Settlement Is a $5 Billion Sham

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.


© 2010-17 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.


A.G. Schneiderman-Led State & Federal Working Group Announces $5 Billion Settlement With Goldman Sachs

A.G. Schneiderman-Led State & Federal Working Group Announces $5 Billion Settlement With Goldman Sachs

Settlement Includes $670 Million For New Yorkers, Including $190 Million In Cash And $480 Million In Consumer Relief Committed To Mortgage Assistance, Principal Forgiveness, And Affordable Housing Programs

New York Has Now Received $5.3 Billion In Cash And Consumer Relief From National Mortgage Settlement And Residential Mortgage-Backed Securities Working Group Settlements Combined Since 2012

Schneiderman: Since 2012, My Number One Priority Has Been Getting New York Families The Resources They Need To Help Rebuild

NEW YORK – Attorney General Eric T. Schneiderman today joined members of the state and federal working group he co-chairs to announce a $5 billion settlement with Goldman Sachs over the bank’s deceptive practices leading up to the financial crisis.  The settlement includes $670 million – $480 million worth of creditable consumer relief and $190 million in cash – that will be allocated to New York State. The resolution requires Goldman Sachs to provide significant community-level relief to New Yorkers, including resources that will facilitate a significant expansion of the New York State Mortgage Assistance Program enabling distressed homeowners to restructure their debt, as well as first-lien principal forgiveness, and funds to spur the construction of more affordable housing.  Additional resources will be dedicated to helping communities transform their code enforcement systems, and invest in land banks and land trusts.

The settlement was negotiated through the Residential Mortgage-Backed Securities Working Group, a joint state and federal working group formed in 2012 to share resources and continue investigating wrongdoing in the mortgage-backed securities market prior to the financial crisis.

New York has now received $5.33 billion in cash and consumer relief from the National Mortgage Settlement (NMS) and all five Residential Mortgage-Backed Securities Working Group settlements (RMBS). The combined $3.2 billion in cash and consumer relief from RMBS settlements is more than any other state.

“Since 2012, my number one priority has been getting New Yorkers the resources they need to rebuild,” Attorney General Schneiderman said. “These dollars will immediately go to work funding proven programs and services to help New Yorkers keep their homes and rebuild their communities. We’ve witnessed the incredible impact these programs and services can have in helping communities recover from the financial crisis. This settlement, like those before it, ensures that these critical programs—such as mortgage assistance, principal forgiveness, and code enforcement—will continue to get funded well into the future, and will be paid for by the institutions responsible for the financial crisis.”

The settlement includes an agreed-upon statement of facts that describes how Goldman Sachs made multiple representations to RMBS investors about the quality of the mortgage loans it securitized and sold to investors, its process for screening out questionable loans, and its process for qualifying loan originators.  Contrary to those representations, Goldman Sachs securitized and sold RMBS backed by large numbers of loans from originators whose mortgage loans contained material defects.

In the statement of facts, Goldman Sachs acknowledges that it securitized thousands of Alt-A, and subprime mortgage loans and sold the resulting residential mortgage-backed securities (“RMBS”) to investors for tens of billions of dollars.  During the course of its due diligence process, Goldman Sachs received pertinent information indicating that significant percentages of the loans reviewed did not conform to the representations it made to investors.  Goldman also received and failed to disclose negative information that it obtained regarding the originators’ business practices.  Indeed, Goldman’s due diligence vendors provided Goldman with reports reflecting that the vendors had graded significant numbers and percentages of sampled loans as EV3s, i.e., not in compliance with originator underwriting guidelines.  In certain circumstances, Goldman reevaluated loan grades and directed that such loans be waived into the pools to be purchased or securitized.

Even when the percentage of problematic loans in pools sampled by it vendors indicated that the unsampled portions of the pools likely contained additional such loans, Goldman typically did not increase the size of the sample or review the unsampled portions of the pools to identify and eliminate any additional such loans.   In many cases, 80 percent or more of the loans in the loan pools Goldman purchased and securitized were not sampled for credit and compliance due diligence.  Nevertheless, Goldman approved various offerings for securitization without requiring further due diligence to determine whether the remaining loans in the deal contained defects.  A Goldman employee overseeing due diligence for a particular loan pool noted that the pool included loans originated with “[e]xtremely aggressive underwriting” and “large program exceptions made without compensating factors.”  Despite this observation, Goldman did not review the remaining portion of the pool, and subsequently securitized thousands of loans from the pool.

Goldman made statements to investors in offering documents and in certain other marketing materials regarding its process for reviewing and approving originators, yet it failed to disclose  to investors negative information it obtained about mortgage loan originators and its practice of securitizing loans from suspended originators.

Beginning in mid-2006, Goldman recognized that Fremont, a “key originator, was experiencing an increasing level of early payment defaults (“EPDs”) (i.e., loans for which the borrowers had failed to make one or more of their first payments).  Goldman was aware that EPDs were a sign of originators’ bad credit decisions and could be indicators of potential borrower fraud.  However, Goldman did not put Fremont on its “no bid” list and continued to purchase loan pools from Fremont during the period Fremont’s EPD claims remained unpaid.  Moreover, Goldman “[u]ndertook a significant marketing effort” to tell investors about what Goldman called Fremont’s “commitment to loan quality over volume” and “significant enhancements to Fremont underwriting guidelines.”    Likewise, Goldman identified issues with Countrywide’s origination practices.  Goldman’s head of due diligence, when presented with a “very bullish” equity report on Countrywide, another large originator, exclaimed “[i]f they only knew  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .”

Attorney General Schneiderman was elected in 2010 and took office in 2011, when the five largest mortgage servicing banks, 49 state attorneys general, and the federal government were on the verge of agreeing to a settlement that would have released the banks – including Bank of America – from liability for virtually all misconduct related to the financial crisis. Attorney General Schneiderman refused to agree to such sweeping immunity for the banks. As a result, Attorney General Schneiderman secured a settlement that preserved a wide range of claims for further investigation and prosecution. In his 2012 State of the Union address, President Obama announced the formation of the RMBS Working Group. The collaboration brought together the Department of Justice (DOJ), other federal entities, and several state law enforcement officials – co-chaired by Attorney General Schneiderman – to investigate those responsible for misconduct contributing to the financial crisis through the pooling and sale of residential mortgage-backed securities.

Under today’s settlement, Goldman Sachs will be required to provide a minimum of $480 million in creditable consumer relief directly to struggling families and communities across the state. The settlement includes a menu of options for consumer relief to be provided, and different categories of relief are credited at different rates toward the bank’s $480 million obligation, including at least:

·         $220 million for debt restructuring

·         $30 million for land banks and land trusts

·         $30 million for code enforcement

·         $150 million for first-lien principal reduction

·         $50 million for the creation and preservation of affordable rental housing

In addition to the settlement with Goldman Sachs, the RMBS working group has reached settlements with four other major financial institutions since 2012:

·         J.P. Morgan Chase: $13 Billion

·         Bank of America: $16.6 Billion

·         Citibank: $7 Billion

·         Morgan Stanley: $3.2 Billion

The National Mortgage Settlement (NMS), reached with the five largest national mortgage servicers, has provided $51 billion in consumer relief and cash nationwide. The combined amount of cash and consumer relief that has been returned to New York as a result of all the RMBS and NMS deals is $1.481 billion in cash and $3.857 in consumer relief, for a total of $5.338 billion. This matter was led by Senior Enforcement Counsel for Economic Justice Steven Glassman and Assistant Attorneys General Desiree Cummings and Kenneth Haim, both of the Investor Protection Bureau.


© 2010-17 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.


Justice Department Recovers Over $3.5 Billion From False Claims Act Cases in Fiscal Year 2015

Justice Department Recovers Over $3.5 Billion From False Claims Act Cases in Fiscal Year 2015

Department of Justice
Office of Public Affairs

Thursday, December 3, 2015

Justice Department Recovers Over $3.5 Billion From False Claims Act Cases in Fiscal Year 2015

Recoveries Exceed $3.5 Billion for Fourth Consecutive Year

The Department of Justice obtained more than $3.5 billion in settlements and judgments from civil cases involving fraud and false claims against the government in the fiscal year ending Sept. 30, Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division, announced today.  This is the fourth year in a row that the department has exceeded $3.5 billion in cases under the False Claims Act, and brings total recoveries from January 2009 to the end of the fiscal year to $26.4 billion.

“The False Claims Act has again proven to be the government’s most effective civil tool to ferret out fraud and return billions to taxpayer-funded programs,” said Mizer.  “The recoveries announced today help preserve the integrity of vital government programs that provide health care to the elderly and low income families, ensure our national security and defense, and enable countless Americans to purchase homes.”

Of the $3.5 billion recovered last year, $1.9 billion came from companies and individuals in the health care industry for allegedly providing unnecessary or inadequate care, paying kickbacks to health care providers to induce the use of certain goods and services, or overcharging for goods and services paid for by Medicare, Medicaid, and other federal health care programs.  The $1.9 billion reflects federal losses only.  In many of these cases, the department was instrumental in recovering additional millions of dollars for consumers and state Medicaid programs.

The next largest recoveries were made in connection with government contracts.  The government depends on contractors to feed, clothe, and equip our troops for combat; for the military aircraft, ships, and weapons systems that keep our nation secure; as well as to provide everything that is needed to fund myriad programs at home.  Settlements and judgments in cases alleging false claims for payment under government contracts totaled $1.1 billion in fiscal year 2015.

The False Claims Act is the government’s primary civil remedy to redress false claims for government funds and property under government contracts, including national security and defense contracts, as well as under government programs as varied as Medicare, veterans’ benefits, federally insured loans and mortgages, highway funds, research grants, agricultural supports, school lunches, and disaster assistance.  In 1986, Congress strengthened the Act by amending it to increase incentives for whistleblowers to file lawsuits on behalf of the government.

Most false claims actions are filed under the Act’s whistleblower, or qui tam, provisions that allow individuals to file lawsuits alleging false claims on behalf of the government.  If the government prevails in the action, the whistleblower, also known as the relator, receives up to 30 percent of the recovery.  Whistleblowers filed 638 qui tam suits in fiscal year 2015 and the department recovered $2.8 billion in these and earlier filed suits this past year.  Whistleblower awards during the same period totaled $597 million.

Health Care Fraud

Including this past year’s $1.9 billion, the department has recovered nearly $16.5 billion in health care fraud since January 2009 to the end of fiscal year 2015 – more than half the health care fraud dollars recovered since the 1986 amendments to the False Claims Act.   These recoveries restore valuable assets to federally funded programs such as Medicare, Medicaid, and TRICARE – the health care program for the military.  But just as important, the department’s vigorous pursuit of health care fraud prevents billions more in losses by deterring others who might otherwise try to cheat the system for their own gain.  The department’s success is a direct result of the high priority the Obama Administration has placed on fighting health care fraud.  In 2009, the Attorney General and the Secretary of the Department of Health and Human Services, the department that administers Medicare and Medicaid, announced the creation of an interagency task force called the Health Care Fraud Prevention and Enforcement Action Team (HEAT), to increase coordination and optimize criminal and civil enforcement.  Additional information on the government’s efforts in this area is available at, a webpage jointly established by the Departments of Justice and Health and Human Services.

Two of the largest health care recoveries this past year were from DaVita Healthcare Partners, Inc., the leading provider of dialysis services in the United States.  DaVita paid $450 million to resolve allegations that it knowingly generated unnecessary waste in administering the drugs Zemplar and Venofer to dialysis patients, and then billed the government for costs that could have been avoided.  DaVita paid an additional $350 million to resolve claims that it violated the False Claims Act by paying kickbacks to physicians to induce patient referrals to its clinics.  DaVita is headquartered in Denver, Colorado, and has dialysis clinics in 46 states and the District of Columbia.

Hospitals were involved in nearly $330 million in settlements and judgments this past year.  A cardiac nurse and a health care reimbursement consultant filed a qui tam suit against hundreds of hospitals that were allegedly implanting cardiac devices in Medicare patients contrary to criteria established by the Centers for Medicare and Medicaid Services in consultation with cardiologists, professional cardiology societies, cardiac device manufacturers, and patient advocates.  The department settled with nearly 500 of these hospitals for a total of $250 million, including $216 million recovered in the past fiscal year.  For details, see 500 Hospitals.

Several settlements involved violations of the Stark Law.  The Stark Statute prohibits certain financial relationships between hospitals and doctors that could improperly influence patient referrals.  Services provided in violation of the Stark Statute are not reimbursable by Medicare or Medicaid.  Hospitals settling false claims involving Stark violations include Adventist Health System for $115 million, an organization that operates hospitals and other health care facilities in 10 states; North Broward  Hospital District for $69.5 million, a special taxing district of Florida that operates hospitals and other health care facilities in Broward County, Florida; and Georgia hospital system Columbus Regional Healthcare System and Dr. Andrew Pippas for $25 million plus contingent payments up to an additional $10 million.  The Adventist settlement also involved allegations of miscoding claims to obtain higher reimbursements for services than allowed by Medicare and Medicaid.

Claims involving the pharmaceutical industry accounted for $96 million in settlements and judgments.  Daiichi Sankyo Inc., a global pharmaceutical company with its U.S. headquarters in New Jersey, paid $39 million to resolve allegations of false claims against the United States and state Medicaid programs.  Daiichi allegedly paid kickbacks to physicians to induce them to prescribe Daiichi drugs, including Azor, Benicar, Tribenzor and Welchol.  Medicare and Medicaid prohibit reimbursement for drugs involved in kickback schemes.  AstraZeneca LP and Cephalon Inc. paid the United States $26.7 million and $4.3 million, respectively, in separate settlements for allegedly underpaying rebates owed under the Medicaid Drug Rebate Program.  As part of those settlements, the two drug manufacturers agreed to pay an additional $23 million to state Medicaid programs for their losses.  And in another settlement, PharMerica Corp., the nation’s second largest nursing home pharmacy, agreed to pay the United States $9.25 million to resolve allegations that it solicited and received kickbacks from pharmaceutical manufacturer Abbott Laboratories in exchange for promoting the drug Depakote for nursing home patients.  PharMerica is headquartered in Louisville, Kentucky.

Skilled nursing homes and rehabilitation facilities have also been fertile ground for civil fraud and false claims actions.  In the largest failure of care settlement with a skilled nursing home chain in the department’s history, Extendicare Health Services Inc. and its subsidiary, Progressive Step Corporation, agreed to pay the United States $32.3 million to resolve allegations that Extendicare billed Medicare and Medicaid for deficient nursing services and billed Medicare for medically unreasonable and unnecessary rehabilitation therapy services.  Extendicare and Pro-Step paid an additional $5.7 million to eight states for their Medicaid losses.  The department has ongoing litigation against additional nursing home chains and rehabilitation centers based on similar allegations of false claims for medically unreasonable or unnecessary rehabilitation therapy.  For example, see HCR ManorCare.

Housing and Mortgage Fraud

The department has recovered over $5 billion in housing and mortgage fraud from January 2009 to the end of fiscal year 2015, including this past year’s recoveries of $365 million.  Notable recoveries this past year include a $212.5 million settlement with First Tennessee Bank N.A.  First Tennessee admitted that from 2006 to 2008, through its subsidiary, First Horizon Home Loans Corporation, it originated and endorsed mortgages for federal insurance by the Federal Housing Administration (FHA) that did not meet eligibility requirements.  First Tennessee also admitted failing to report such deficiencies to the authorities as required under the program despite widespread knowledge by its senior managers by early 2008.  In August 2008, First Tennessee sold First Horizon to MetLife Bank N.A., a wholly-owned subsidiary of MetLife Inc.  Metlife admitted similar misconduct regarding the loans it originated and endorsed from September 2008 to March 2012.  MetLife paid the United States $123.5 million to resolve liability under the False Claims Act arising from its misconduct in endorsing mortgagees for FHA insurance.

The department also settled claims against Walter Investment Management Corp. for $29.63 million.  The government alleged that the company, through subsidiaries Reverse Mortgage Solution Inc., REO Management Solutions LLC, and RMS Asset Management Solutions LLC, caused false claims for fees and other costs in servicing reverse mortgages under the Department of Housing and Urban Development’s (HUD’s) Home Equity Conversion Mortgages (HECM) program.  Reverse mortgage loans allow elderly people to access the equity in their homes.  The loans provide monthly payments that enable the elderly to meet their day-to-day living expenses while remaining in their homes.  To encourage these loans, HUD insures banks and other institutions that service the mortgages against loss, providing the institution complies with requirements to ensure the quality of such loans.  Walter Investment allegedly failed to comply with these requirements.

These recoveries are part of the broader enforcement efforts by President Obama’s Financial Fraud Enforcement Task Force.  President Obama established the interagency task force in 2009, to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes.  The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources.  The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.  For more information about the task force, visit

Government Contracts

Government contracts and federal procurement accounted for $1.1 billion in fraud settlements and judgments in fiscal year 2015, bringing procurement fraud totals to nearly $4 billion from January 2009 to the end of the fiscal year.  Significant cases include a $146 million settlement with Supreme Group B.V. and several of its subsidiaries for alleged false claims to the Department of Defense (DoD) for food, water, fuel, and transportation of cargo for American soldiers in Afghanistan.  Supreme Group is based in Dubai, United Arab Emirates (UAE).  In addition, Supreme Group affiliates Supreme Foodservice GmbH, a privately held Swiss company, and Supreme Foodservice FZE, a privately-held UAE company, pleaded guilty to related criminal violations and paid more than $288 million in criminal fines.

In two other defense contract settlements, Lockheed Martin Integrated Systems, a subsidiary of aerospace giant Lockheed Martin Inc., paid $27.5 million and DRS Technical Services Inc. paid $13.7 million to resolve allegations that their employees lacked required job qualifications while the companies charged for the higher level, qualified employees required under contracts with U.S. Army Communication and Electronics Command (CECOM).  The CECOM contracts were designed to give the Army rapid access to products and services for operations in Iraq and Afghanistan.

In a pair of cases involving contracts with the General Services Administration, VMware Inc. and Carahsoft Technology Corporation paid the United States $75.5 million and Iron Mountain Companies paid $44.5 million to settle their respective liability under the False Claims Act.  The government alleged that California-based VMware and Virginia-based Carahsoft misrepresented their commercial sales practices, which resulted in overcharging government agencies for their software products and services sold through GSA’s Multiple Award Schedule.  Similarly, Iron Mountain, a records storage company headquartered in Massachusetts, misrepresented its commercial sales practices to GSA and failed to give certain discounts given to its commercial customers, as required to gain access to the vast federal marketplace available to contractors through the Multiple Award Schedule.

The department settled allegations that private contractor U.S. Investigations Services Inc. (USIS) violated the False Claims Act in performing a contract with the Office of Personnel Management (OPM) to perform background investigations of federal employees and those applying for federal service.  The government alleged that USIS took shortcuts that compromised its contractually-required quality review and that, had the government known, it would not have paid for the services.  USIS agreed to forego at least $30 million in payments legitimately owed to the company to settle the government’s allegations.

Other Fraud Recoveries and Actions

Although health care, mortgage, and government contract fraud dominated fiscal year 2015 recoveries, the department has aggressively pursued fraud wherever it is found in federal programs.  For example, the department recovered $44 million from Fireman’s Fund Insurance Company for alleged fraud under the U.S. Department of Agriculture’s federal crop insurance program.  The United States alleged that Fireman’s Fund knowingly issued federally reinsured crop insurance policies that were ineligible for federal reinsurance.  Specifically, Fireman’s Fund allegedly backdated policies, forged farmers’ signatures, accepted late and altered documents, whited-out dates and signatures, and signed documents after relevant deadlines.  The policies were issued by Fireman’s Fund offices in California, Kansas, Mississippi, North Dakota, Texas, and Washington.

The department also recovered $13 million from Education Affiliates, a for-profit education company based in White Marsh, Maryland, for alleged false claims to the Department of Education for student aid for students whose qualifications for admission were falsified to get them enrolled so they could receive aid which would be paid to the school.  Education Affiliates operates 50 campuses throughout the United States under various trade names.

In other actions, the department filed lawsuits to recover funds disbursed under the Troubled Asset Relief Program (TARP) and payments made under contracts awarded to benefit disadvantaged populations identified under the Small Business Administration’s set-aside programs.  In one action, the department sued the estate and trusts of the late Layton P. Stuart, former owner and president of One Financial Corporation, and its operating subsidiary, One Bank & Trust N.A., both based in Arkansas, alleging that Stuart made misrepresentations to induce the Department of the Treasury to invest TARP funds in One Financial as part of Treasury’s Capital Purchase Program.  The department recently settled with the Stuart estate and trusts for $4 million, but claims remain pending against One Financial Corporation.

In a second action, the department filed suit against Florida-based Air Ideal Inc. and its owner, Kim Amkraut.  The government alleged that Air Ideal and Amkraut falsely certified that the company qualified for preferences given to small businesses located in a Historically Underutilized Business Zone (HUBZone) when Air Ideal’s HUBZone location was no more than a virtual office and its principal place of business was in a non-HUBZone location.  The government further alleged that Air Ideal used its fraudulently-procured HUBZone certification to obtain contracts from the Coast Guard, Army, Army Corps of Engineers, and Department of the Interior that were worth millions of dollars.  The department settled with Air Ideal and Amkraut for $250,000 plus five percent of Air Ideal’s gross revenues for five years.

These suits and settlements illustrate the diversity of cases pursued by the department and the department’s quest to root out fraud and false claims against the government wherever it may be found.

Holding Individuals Accountable    

On Sept. 9, Deputy Attorney General Sally Quillian Yates issued a memorandum on individual accountability for corporate wrongdoing.  This memorandum reinforced the department’s commitment to use the False Claims Act and other civil enforcement tools to deter and redress fraud by individuals as well as corporations.

In addition to those suits involving individuals described above, the department settled or filed suit against individuals in an array of cases.  For example, Two Florida couples agreed to pay the United States $1.137 million collectively, to resolve allegations that they accepted kickbacks in exchange for home health care referrals to A Plus Home Health Care Inc.  The United States previously settled with A Plus, its owner Tracy Nemerofsky, and five other couples that allegedly accepted payments from A Plus.  Dr. Charles Denham, of Laguna Beach, California, paid the United States $1 million to settle allegations that he solicited and accepted kickbacks from CareFusion in return for promoting a CareFusion product and influencing recommendations by the National Quality Forum.  Denham was a patient safety consultant who co-chaired a National Quality Forum Committee. After settling with two cardiovascular testing laboratories for $48.5 million – Health Diagnostics Laboratory Inc. (HDL) and Singulex Inc., the department intervened in three qui tam suits against another laboratory, Berkeley HeartLab Inc., a marketing company, BlueWave Healthcare Consultants Inc. and three individuals – BlueWave’s owners, Floyd Calhoun Dent III and Robert Bradley Johnson and HDL’s co-founder and former chief executive officer, LaTonya Mallory.  The department also intervened in two qui tam suits against Florida cardiologist Dr. Asad Qamar and his practice, the Institute for Cardiovascular Excellence PLLC, alleging that Qamar and his practice billed Medicare for medically unnecessary peripheral artery procedures and interventions and paid kickbacks to patients by waiving Medicare copayments irrespective of financial hardship.  The department also filed a complaint against H. Ted Cain, Julie Cain, Corporate Management Inc. and Stone County Hospital Inc. for false claims for Medicare reimbursement.  The government alleged that Ted and Julie Cain, the hospital and hospital management company owned and controlled by Ted Cain, claimed reimbursement for the hospital’s costs at inflated rates and for ineligible expenses.  These matters are ongoing.

Outside the health care arena, EDF Resource Capital Inc. agreed to transfer assets worth $5.8 million to the United States, and its chief executive officer, Frank Dinsmore, agreed to pay $200,000 to the United States, to settle allegations that they violated the False Claims Act in failing to remit payments to the Small Business Administration under the 504 loan program.  The 504 loan program provides growing businesses with long-term, fixed-rate financing for major fixed assets, such as land and buildings.  The program operates through local lenders like EDF, who reap benefits from the program in return for shouldering certain financial obligations which Dinsmore and EDF allegedly ignored.  The department also entered settlements with two individuals for evasion of Customs duties owed on imports of aluminum extrusions from the People’s Republic of China (PRC).  Robert Wingfield, the U.S. sales representative of a Chinese manufacturer, and Bill Ma, owner of an ostensible importer, allegedly misrepresented the country of origin of goods to avoid steep antidumping and countervailing duties imposed by the Department of Commerce and collected by U.S. Customs and Border Protection on imports of aluminum extrusions from the PRC to protect domestic manufacturers from unfair foreign pricing practices.  The government previously settled related allegations with four importers, bringing total settlements in the case to $4.6 million, including the $435,000 from Wingfield and Ma.

Recoveries in Whistleblower Suits

Of the $3.5 billion the government recovered in fiscal year 2015, more than $2.8 billion related to lawsuits filed under the qui tam provisions of the False Claims Act.  During the same period, the government paid out $597 million to the individuals who exposed fraud and false claims by filing a qui tam complaint, often at great risk to their careers.

The number of lawsuits filed under the qui tam provisions of the Act has grown significantly since 1986, with 638 qui tam suits filed this past year.  The growing number of qui tam lawsuits, particularly since 2009, has led to increased recoveries.  From January 2009 to the end of fiscal year 2015, the government recovered $19.4 billion in settlements and judgments related to qui tam suits and paid whistleblower awards of $3 billion during the same period.

“Many of the recoveries obtained under the False Claims Act result from courageous men and women who come forward to blow the whistle on fraud they are often uniquely positioned to expose,” said Principal Deputy Assistant Attorney General Mizer.

In 1986, Senator Charles Grassley and Representative Howard Berman led successful efforts in Congress to amend the False Claims Act to, among other things, encourage whistleblowers to come forward with allegations of fraud.  In 2009, Senator Patrick J. Leahy, along with Senator Grassley and Representative Berman, championed the Fraud Enforcement and Recovery Act of 2009, which made additional improvements to the False Claims Act and other fraud statutes.  And in 2010, the passage of the Affordable Care Act provided additional inducements and protections for whistleblowers and strengthened the provisions of the federal health care Anti-Kickback Statute.

Principal Deputy Assistant Attorney General Mizer also expressed his deep appreciation for the many dedicated public servants who investigated and pursued these cases – the attorneys, investigators, auditors and other agency personnel throughout the Department of Justice’s Civil Division and the U.S. Attorneys’ Offices, as well as the agency Offices of Inspector General and the many federal and state agencies that contributed to the department’s recoveries this past fiscal year.

“The department’s lawyers and staff, together with our law enforcement partners in federal and state governments, work tirelessly and often overcome daunting challenges to achieve these successes on behalf of the taxpayers,” said Principal Deputy Assistant Attorney General Mizer.

The government’s claims in the matters described above are allegations only; except where indicated, there has been no determination of liability.

Updated January 8, 2016
© 2010-17 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.


Bank of NY Mellon must face lawsuit over $1.12 billion mortgage loss

Bank of NY Mellon must face lawsuit over $1.12 billion mortgage loss


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.”



© 2010-17 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.


Morgan Stanley Agrees to Pay $2.6 Billion Penalty in Connection with Its Sale of Residential Mortgage Backed Securities

Morgan Stanley Agrees to Pay $2.6 Billion Penalty in Connection with Its Sale of Residential Mortgage Backed Securities

Thursday, February 11, 2016

Morgan Stanley Agrees to Pay $2.6 Billion Penalty in Connection with Its Sale of Residential Mortgage Backed Securities

The Justice Department today announced that Morgan Stanley will pay a $2.6 billion penalty to resolve claims related to Morgan Stanley’s marketing, sale and issuance of residential mortgage-backed securities (RMBS).  This settlement constitutes the largest component of the set of resolutions with Morgan Stanley entered by members of the RMBS Working Group, which have totaled approximately $5 billion.  As part of the agreement, Morgan Stanley acknowledged in writing that it failed to disclose critical information to prospective investors about the quality of the mortgage loans underlying its RMBS and about its due diligence practices.  Investors, including federally insured financial institutions, suffered billions of dollars in losses from investing in RMBS issued by Morgan Stanley in 2006 and 2007.

“Today’s settlement holds Morgan Stanley appropriately accountable for misleading investors about the subprime mortgage loans underlying the securities it sold,” said Acting Associate Attorney General Stuart F. Delery.  “The Department of Justice will not tolerate those who seek financial gain through deceptive or unfair means, and we will take appropriately aggressive action against financial institutions that knowingly engage in improper investment practices.”

“Those who contributed to the financial crisis of 2008 cannot evade responsibility for their misconduct,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division.  “This resolution demonstrates once again that the Financial Institutions Reform, Recovery and Enforcement Act is a powerful weapon for combatting financial fraud and that the department will not hesitate to use it to hold accountable those who violate the law.”

An RMBS is a type of security comprised of a pool of mortgage loans created by banks and other financial institutions.  The expected performance and price of an RMBS is determined by a number of factors, including the characteristics of the borrowers and the value of the properties underlying the RMBS.  Morgan Stanley was one of the institutions that issued RMBS during the period leading up to the economic crisis in 2007 and 2008.

As acknowledged by Morgan Stanley in a detailed statement of facts that is a part of this agreement (and is quoted below), the company made representations to prospective investors about the characteristics of the subprime mortgage loans underlying its RMBS – representations with which it did not comply:

  • In particular, Morgan Stanley told investors that it did not securitize underwater loans (loans that exceeded the value of the property).  However, Morgan Stanley did not disclose to investors that in April 2006 it had expanded its “risk tolerance” in evaluating loans in order to purchase and securitize “everything possible.”  As Morgan Stanley’s manager of valuation due diligence told an employee in 2006, “please do not mention the ‘slightly higher risk tolerance’ in these communications.  We are running under the radar and do not want to document these types of things.”  As a result, Morgan Stanley ignored information – including broker’s price opinions (BPOs), which are estimates of a property’s value from an independent real estate broker – indicating that thousands of securitized loans were underwater, with combined-loan-to-value ratios over 100 percent.  From January 2006 through mid-2007, Morgan Stanley acknowledged that “Morgan Stanley securitized nearly 9,000 loans with BPO values resulting in [combined loan to value] ratios over 100 percent.”


  • Morgan Stanley also told investors that it did not securitize loans that failed to meet originators’ guidelines unless those loans had compensating factors.  Morgan Stanley’s offering documents “represented that ‘[the mortgage loans originated or acquired by [the originator] were done so in accordance with the underwriting guidelines established by [the originator]’ but that ‘on a case-by-case-basis, exceptions to the [underwriting guidelines] are made where compensating factors exist.’”  Morgan Stanley has now acknowledged, however, that “Morgan Stanley did not disclose to securitization investors that employees of Morgan Stanley received information that, in certain instances, loans that did not comply with underwriting guidelines and lacked adequate compensating factors . . . were included in the RMBS sold and marketed to investors.”  So, in fact, “Morgan Stanley . . . securitized certain loans that neither comported with the originators’ underwriting guidelines nor had adequate compensating factors.”


  • Likewise, “Morgan Stanley also prepared presentation materials . . . that it used in discussions with potential investors that described the due diligence process for reviewing pools of loans prior to securitization,” but “certain of Morgan Stanley’s actual due diligence practices did not conform to the description of the process set forth” in those materials.


  • For example, Morgan Stanley obtained BPOs for a percentage of loans in a pool.  Morgan Stanley stated in these presentation materials that it excluded any loan with a BPO value exhibiting an “unacceptable negative variance from the original appraisal,” when in fact “Morgan Stanley never rejected a loan based solely on the BPO results.”


  • Through these undisclosed practices, Morgan Stanley increased the percentage of mortgage loans it purchased for its RMBS, notwithstanding its awareness about “deteriorating appraisal quality” and “sloppy underwriting” by the sellers of these loans.  The bank has now acknowledged that “Morgan Stanley was aware of problematic lending practices of the subprime originators from which it purchased mortgage loans.”  However, it “did not increase its credit-and-compliance due diligence samples, in part, because it did not want to harm its relationship with its largest subprime originators.” Indeed, Morgan Stanley’s manager of credit-and-compliance due diligence was admonished to “stop fighting and begin recognizing the point that we need monthly volume from our biggest trading partners and that . . . the client [an originator] does not have to sell to Morgan Stanley.”

“In today’s agreement, Morgan Stanley acknowledges it sold billions of dollars in subprime RMBS certificates in 2006 and 2007 while making false promises about the mortgage loans backing those certificates,” said Acting U.S. Attorney Brian J. Stretch of the Northern District of California.  “Morgan Stanley touted the quality of the lenders with which it did business and the due diligence process it used to screen out bad loans.  All the while, Morgan Stanley knew that in reality, many of the loans backing its securities were toxic.  Abuses in the mortgage-backed securities industry such as these helped bring about the most devastating financial crisis in our lifetime.  Our office is committed to dedicating the resources necessary to hold those who engage in such reckless actions responsible for their conduct.”

The $2.6 billion civil monetary penalty resolves claims under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA).  FIRREA 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 Morgan Stanley, and likewise does not release any individuals from potential criminal or civil liability.  In addition, as part of the settlement, Morgan Stanley promised to cooperate fully with any ongoing investigations related to the conduct covered by the agreement.

In conjunction with today’s announcement of the federal government’s settlement with Morgan Stanley, the states of New York and Illinois – also members of the RMBS Working Group – have announced settlements with Morgan Stanley for $550 million and $22.5 million, respectively, arising from its sale of RMBS.  Among other resolutions, Morgan Stanley previously paid $225 million to  resolve claims brought by the National Credit Union Administration arising from losses related to corporate credit unions’ purchases of RMBS; $1.25 billion to resolve claims by Federal Housing Finance Agency (FHFA) for Morgan Stanley’s alleged violations of federal and state securities laws and common law fraud in connection with RMBS purchased by Fannie Mae and Freddie Mac; and $86.95 million to resolve federal and state securities laws claims brought by the Federal Deposit Insurance Corporation as receiver on behalf of failed financial institutions.  Morgan Stanley also previously entered into a consent decree with the U.S. Securities and Exchange Commission (SEC) to pay $275 million to resolve certain RMBS claims.  With today’s announcement, Morgan Stanley will have paid nearly $5 billion to members of the RMBS Working Group in connection with its sale of RMBS.

Today’s settlement is part of the ongoing efforts of President Obama’s Financial Fraud Enforcement Task Force’s RMBS Working Group, which has recovered billions of dollars arising from misconduct related to the financial crisis.  The RMBS Working Group is a federal and state law enforcement effort focused on investigating fraud and abuse in the RMBS market that helped lead to the 2008 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 SEC, the Department of Housing and Urban Development (HUD), HUD’s Office of Inspector General, the FHFA Office of Inspector General (OIG), the Office of the Special Inspector General for the Troubled Asset Relief Program, 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 five co-chairs: Principal Deputy Assistant Attorney General Benjamin C. Mizer of the Justice Department’s Civil Division, Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, Director Andrew Ceresney of the SEC’s Division of Enforcement, U.S. Attorney John Walsh of the District of Colorado and New York Attorney General Eric Schneiderman.

“The securitization of defective mortgages and the billions of dollars that were lost as a result caused such a hardship to our economy, the housing industry and our nation as a whole that we are still feeling the effects years after,” said Deputy Inspector General for Investigations Rene Febles of FHFA-OIG.  “Morgan Stanley is responsible for their role, which caused enormous losses to investors.  This settlement is one step in recovering from those losses.  We are proud to work with the RMBS Working Group and the U.S. Department of Justice on this and all RMBS matters.”

The settlement was the result of a coordinated effort between the Civil Division’s Commercial Litigation Branch and the U.S. Attorney’s Office of the Northern District of California, with investigative support from FHFA-OIG.

Learn more about the RMBS Working Group and the Financial Fraud Enforcement Task Force at:

Updated February 11, 2016
© 2010-17 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.


Wells Fargo to Pay $1.2 Billion in Mortgage Settlement

Wells Fargo to Pay $1.2 Billion in Mortgage Settlement

What about the homeowners who were equally screwed??


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.


© 2010-17 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.


Goldman Sachs to pay $5 billion in mortgage settlement

Goldman Sachs to pay $5 billion in mortgage settlement


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.


© 2010-17 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.


Pimco, others sue Citigroup over billions in mortgage debt losses

Pimco, others sue Citigroup over billions in mortgage debt losses


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


© 2010-17 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.


re: REMIC Sec. 860A-860G | The Internal Revenue Service approved Bank of America’s $8.5 billion settlement for mortgage-backed securities purchased from Countrywide

re: REMIC Sec. 860A-860G | The Internal Revenue Service approved Bank of America’s $8.5 billion settlement for mortgage-backed securities purchased from Countrywide

h/t refinblog

Dated: October 13, 2015

Ladies and Gentlemen:

This Notice is given by The Bank of New York Mellon (the “Trustee”), as trustee or indenture trustee under the Pooling and Servicing Agreements and Indentures and related Sales and Servicing Agreements (collectively, the “Governing Agreements”) governing the Settlement Trusts. The purpose of this Notice is to inform the beneficial owners of the Subject Securities and other persons potentially interested in the Settlement Trusts that the requirements of Subparagraphs 2(e) and 2(f) of the Settlement Agreement have been satisfied in full on October 5, 2015 and October 13, 2015, respectively, and that therefore the “Approval Date” under the Settlement Agreement has occurred on October 13, 2015.

Subparagraph 2(e) of the Settlement Agreement conditions Final Court Approval on the receipt of certain private letter ruling(s) from the Internal Revenue Service (“IRS”) with respect to the Settlement Trusts and provides that the Trustee shall cause the submission of a request for such private letter ruling(s) to the IRS and use reasonable best efforts to pursue such request. Subparagraph 2(f) of the Settlement Agreement conditions Final Court Approval on the receipt, at the Trustee’s request, of an opinion of Trustee tax counsel with respect to certain states concerning the same matters that would be covered by the requested private letter ruling(s).

In a prior informational notice, dated June 29, 2015 (the “June 2015 Informational
Notice”), the Trustee informed the beneficial owners of the Subject Securities and other persons
potentially interested in the Settlement Trusts that on April 8, 2015, the Trustee submitted to the
IRS a request for private letter ruling(s) under Sections 860A-860G of the Internal Revenue
Code of 1986, as amended (the “Code”) with respect to the Settlement Agreement (the “Private
Ruling Request”). The Trustee further informed the beneficial owners of the Subject Securities
and other persons potentially interested in the Settlement Trusts that the Trustee expected
delivery of the opinions contemplated under Subparagraph 2(f) of the Settlement Agreement
shortly after the issuance by the IRS of the private letter ruling(s) requested in the Private Ruling

The Trustee hereby provides notice that on October 5, 2015, Trustee’s tax counsel
received, on behalf of Trustee, a private letter ruling from the IRS (PLR-113051-15) that
satisfies the requirements of Subparagraph 2(e) of the Settlement Agreement in all respects (the
“Private Letter Ruling”). A copy of the Private Letter Ruling is attached as Exhibit B hereto.
The Trustee hereby provides further notice that on October 13, 2015, the Trustee
received opinions from Trustee tax counsel (the “Tax Opinions”) that satisfy the requirements
of Subparagraph 2(f) of the Settlement Agreement in all respects.

As a result of the foregoing, the “Approval Date” under the Settlement Agreement has
occurred on October 13, 2015. Accordingly, among other things, (i) the servicing improvements
set out in Subparagraph 5(c) of the Settlement Agreement and the reporting and attestation
obligations set out in Subparagraph 5(f) of the Settlement Agreement are now in effect; (ii)
pursuant to Subparagraph 3(c)(iv) of the Settlement Agreement, the Expert is required to
calculate the Allocable Share of each Settlement Trust within ninety (90) days of October 13,
2015, and (iii) pursuant to Subparagraph 3(a) of the Settlement Agreement, Bank of America
and/or Countrywide are required to pay the Settlement Payment or cause the Settlement
Payment to be paid in accordance with Subparagraph 3(b) of the Settlement Agreement within
one-hundred and twenty (120) days of October 13, 2015.

The Trustee expects to provide one or more additional informational notices (x) after
the Expert determines the Allocable Share of each Settlement Trust in accordance with
Subparagraph 3(c) of the Settlement Agreement and (y) after Countrywide and/or Bank of
America inform the Trustee of the date on which the Settlement Payment will be paid in
accordance with Subparagraph 3(b) of the Settlement Agreement (at which time the Trustee
expects to also give notice concerning the applicable distribution date on which the Settlement
Trusts’ Allocable Shares will be distributed to Investors in accordance with Subparagraph 3(d)
of the Settlement Agreement).

This Notice is not intended to be and should not be construed as investment, accounting,
financial, legal or tax advice by or on behalf of the Trustee, or its directors, officers, affiliates,
agents, attorneys or employees. Each person receiving this Notice is urged to carefully review
the Notice and should seek the advice of its own advisors in respect of the matters set forth

If you have any questions regarding this Notice, please contact the Trustee by email at or by telephone at (866) 294-7876 or (614) 569-0289.

Trustee for the Settlement Trusts


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© 2010-17 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.


FDIC vs THE BANK OF NEW YORK MELLON | BNY breached its duties as trustee of 12 RMBS trusts that issued approximately $2 billion in certificates

FDIC vs THE BANK OF NEW YORK MELLON | BNY breached its duties as trustee of 12 RMBS trusts that issued approximately $2 billion in certificates






1. This is an action for damages against BNY Mellon for its breaches of contractual and statutory duties under the governing agreements, the New York Streit Act, N.Y. Real Property Law § 124, et seq. (the “Streit Act”), and under the federal Trust Indenture Act of 1939 (the “TIA”), 15 U.S.C. § 77aaa, et seq.1 as Trustee for 12 securitization trusts (the “Covered Trusts”), identified below, which issued residential mortgage-backed securities (“RMBS”) purchased by investors, including Guaranty Bank (“Guaranty”).

2. This action seeks to hold BNY Mellon accountable for abdicating its fundamental duties as the trustee to certificateholders such as Plaintiff. Under the agreements governing the Covered Trusts, BNY Mellon accepted virtually all of the powers designed to protect the certificateholders and was compensated for that role. BNY Mellon was essentially Plaintiff’s sole source of protection against breaches of the governing agreements by the other parties to those agreements, including the sponsors that sold the loans to the Covered Trusts and the servicers tasked with servicing the mortgage loans. BNY Mellon, however, shirked its duty to exercise its powers to protect Plaintiff and instead attempted to shorn itself of the responsibilities that trusteeship imports. While BNY Mellon stood idly for years, the sponsors kept defective mortgage loans in the Covered Trusts, servicers reaped excessive fees for servicing the defaulted loans from the Covered Trusts, and Plaintiff was left to suffer enormous losses.

3. The Covered Trusts were created to facilitate RMBS transactions sold to investors from 2005 to 2006. Eight of the RMBS transactions were sponsored by Countrywide Home Loans, Inc. (the “Countrywide Trusts”), and four were sponsored by EMC Mortgage Corporation (the “EMC Trusts”) (EMC Mortgage Corporation and Countrywide Home Loans, Inc., are referred to as “Countrywide” and “EMC” respectively, or collectively as the “Sponsors”).


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© 2010-17 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.


PART 2. U.S. banks moved billions of dollars in trades beyond Washington’s reach

PART 2. U.S. banks moved billions of dollars in trades beyond Washington’s reach


This spring, traders and analysts working deep in the global swaps markets began picking up peculiar readings: Hundreds of billions of dollars of trades by U.S. banks had seemingly vanished.

“We saw strange things in the data,” said Chris Barnes, a former swaps trader now with ClarusFT, a London-based data firm.

The vanishing of the trades was little noted outside a circle of specialists. But the implications were big. The missing transactions reflected an effort by some of the largest U.S. banks — including Goldman Sachs, JP Morgan Chase, Citigroup, Bank of America, and Morgan Stanley — to get around new regulations on derivatives enacted in the wake of the financial crisis, say current and former financial regulators.


© 2010-17 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.


Bank of NY Mellon sued by U.S. regulator over $2 billion in soured mortgages

Bank of NY Mellon sued by U.S. regulator over $2 billion in soured mortgages


A U.S. regulator sued Bank of New York Mellon Corp (BK.N) on Wednesday over $2.06 billion in residential mortgage-backed securities purchased by a failed Texas bank, and accused it of breaching its duties as bond trustee to protect investors.

In a complaint filed in Manhattan federal court, the Federal Deposit Insurance Corp, which sued in its capacity as receiver for the former Guaranty Bank, said it suffered more than $440 million in losses when it sold the securities in March 2010.

The FDIC filed a similar lawsuit against US Bancorp (USB.N), another major bond trustee, over more than $248 million of mortgage debt bought by Guaranty, and resulting in “significant” losses when those securities were sold.


© 2010-17 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.


Goldman Sachs Group CEO Lloyd Blankfein Is NOW a Billionaire

Goldman Sachs Group CEO Lloyd Blankfein Is NOW a Billionaire

He has a special thanks to give to the Obama Administration.


Goldman Sachs Group Inc. made hundreds of partners rich when it went public in 1999. Its performance since then has turned Lloyd Blankfein into a billionaire.

The chief executive officer of the Wall Street bank for the past nine years, Blankfein has seen his net worth surge to about $1.1 billion as the firm’s shares quadrupled since the initial public offering, according to the Bloomberg Billionaires Index. As the largest individual owner of Goldman Sachs stock, he has a stake in the company worth almost $500 million. Real estate and an investment portfolio seeded by cash bonuses and distributions from the bank’s private-equity funds add more than $600 million.

For Blankfein, the son of a New York postal worker, the accumulation of wealth has been dramatic. He’s one of the few current leaders of a big global bank who reached a senior-executive rank before his firm went public. That won’t happen again anytime soon, as Goldman Sachs was the last major Wall Street firm to end its private partnership.


image: Reuters

© 2010-17 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.


HSBC must face U.S. lawsuits over $34 billion mortgage debt losses

HSBC must face U.S. lawsuits over $34 billion mortgage debt losses


HSBC Holdings Plc (HSBA.L) was on Monday ordered to face three U.S. lawsuits accusing it of breaching its duties as a trustee overseeing residential mortgage-backed securities that suffered more than $34 billion of losses in the global financial crisis.

U.S. District Judge Shira Scheindlin in Manhattan said the plaintiff investors, including funds from BlackRock Inc (BLK.N), Allianz SE’s (ALVG.DE) Pacific Investment Management Co and TIAA-CREF, could pursue claims accusing HSBC of breach of contract, and concealing known defects in mortgage loans backing 283 trusts.

“Based on plaintiffs’ detailed allegations, it is indeed plausible to infer that HSBC had actual knowledge of breaches in representations and warranties in the specific loans at issue,” Scheindlin wrote in a 53-page decision. “How HSBC gained this actual knowledge, or whether in fact it had actual knowledge, may be determined through discovery.”

The judge also said the plaintiffs could pursue a conflict of interest claim accusing HSBC of refusing to “rat out” misconduct by loan servicers, hoping that they would “return the favour when the roles were reversed.”


© 2010-17 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.


The $265 Billion Wave That’s About to Crush Homeowners

The $265 Billion Wave That’s About to Crush Homeowners


Millions of consumers will have to absorb a major hit to their household budget in the coming months. About $265 billion in home equity lines of credit (HELOCs) will enter the repayment period in the next few years, according to a study from Experian, and consumers may see their monthly payments spike — in some cases, triple or quadruple what they previously paid.

HELOC originations soared from 2005 up until the start of the housing crisis, and because many HELOCs enter the repayment phase after 10 years, these billions of dollars in outstanding credit balances are just now coming due. This wave of HELOC resets is expected to significantly stress borrowers’ finances and the lending industry.

“This analysis is critical as we want to not only help lenders prepare and understand the payment stress of their borrowers, but also give consumers an opportunity to understand what the impact may be to their financial status and how to be better prepared for it,” said Michele Raneri, Experian’s vice president of analytics and business development, in a statement about the study.


© 2010-17 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.


Five global banks to pay $5.7 billion in fines over rate rigging

Five global banks to pay $5.7 billion in fines over rate rigging

Sex on the beach….15 yrs!

Continue to destroy the planet….0 yrs!!



Five of the world’s largest banks, including JPMorgan Chase & Co and Citigroup Inc, were fined roughly $5.7 billion, and four of them pleaded guilty to U.S. criminal charges over manipulation of foreign exchange rates, authorities said on Wednesday.

A fifth bank, UBS AG, will plead guilty to rigging benchmark interest rates, the U.S. Justice Department said.

U.S. banks JPMorgan Chase and Citigroup will pay $550 million and $925 million in criminal fines, respectively, as part of their guilty pleas.



© 2010-17 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.


JPMorgan to Buy $45 Billion of Ocwen’s Loan-Servicing Rights

JPMorgan to Buy $45 Billion of Ocwen’s Loan-Servicing Rights

Just going to blow right up in their faces AGAIN and I betcha the taxpayers are going to get the bill.



JPMorgan Chase & Co., the second-biggest servicer of U.S. mortgages, agreed to buy the right to manage about $45 billion in home loans from Ocwen Financial Corp. starting June 1.

The deal involves servicing rights for 266,000 mortgages owned by Fannie Mae, the New York-based bank said Thursday in a statement that didn’t disclose terms. Bloomberg reported in March that JPMorgan was acquiring the rights.

The agreement will bring JPMorgan’s portfolio for overseeing billing, collections and foreclosures on U.S. mortgages to about $1 trillion, a threshold last exceeded in the fourth quarter of 2013. Its $948.8 billion loan-servicing portfolio as of Dec. 31 trailed only Wells Fargo & Co.’s $1.75 trillion, according to data compiled by Bloomberg.


image: Reuters

© 2010-17 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.




April 23, 2015

Contact: Matt Anderson, 212-709-1691


Widespread Effort by Bank Employees to Manipulate Benchmark Interest Rate Submissions for LIBOR, EURIBOR, TIBOR

Deutsche Bank Employee: This “is a corrupt fixing and DB is part of it!”

Deutsche Bank Employee Seeking to Obtain Lower Rate: “I’m begging u, don’t forget me… pleassssssssssssssseeeeeeeeee… I’m on my knees…”

Benjamin M. Lawsky, Superintendent of Financial Services, announced today that Deutsche Bank will pay $2.5 billion, terminate and ban individual employees who engaged in misconduct, and install an independent monitor for New York Banking Law violations in connection with the manipulation of the benchmark interest rates, including the London Interbank Offered Bank (“LIBOR”), the Euro Interbank Offered Rate (“EURIBOR”) and Euroyen Tokyo Interbank Offered Rate (“TIBOR”) (collectively, “IBOR”).

The overall $2.5 billion penalty Deutsche Bank will pay includes $600 million to the New York State Department of Financial Services (NYDFS), $800 million to the Commodities Futures Trading Commission (CFTC), $775 million to the U.S. Department of Justice (DOJ), and 227 million GBP (approximately $340 million) to the United Kingdom’s Financial Conduct Authority (FCA).

Superintendent Lawsky said: “Deutsche Bank employees engaged in a widespread effort to manipulate benchmark interest rates for financial gain. While a number of the employees involved in misconduct have already left the bank, those that remain are being terminated or banned from the New York banking system. We must remember that markets do not just manipulate themselves: It takes deliberate wrongdoing by individuals.”

The London Interbank Offered Rate (“LIBOR”) is a benchmark interest rate used in financial markets around the world.  It is the primary benchmark for short term interest rates globally, written into standard derivative and loan documentation, used for a range of retail products, such as mortgages and student loans, and the basis for settlement of interest rate contracts on many of the world’s major futures and options exchanges.  It is also used as a barometer to measure the health of the banking system and as a gauge of market expectation for future central bank interest rates.

From approximately 2005 through 2009, certain Deutsche Bank traders frequently requested that certain submitters submit rate contributions that would benefit the traders’ trading positions, rather than the rates that complied with the IBOR definitions. For example, on February 21, 2005, a trader requested of another trader who performed submitter duties on a back-up basis, “can we have a high 6mth libor today pls gezzer?”  The trader/submitter agreed, “sure dude, where wld you like it mate ?”  The trader replied, “think it shud be 095?”  The trader/submitter replied, “cool, was going 9, so 9.5 it is.”  The trader joked, “super – don’t get that level of flexibility when [the usual submitter] is in the chair fyg!” Similarly, on December 29, 2006, a trader wrote to a submitter, “Come on 32 on 1. Mth… Cu my frd.”  The submitter agreed, “ok will try to give you a belated Christmas present…!”

Deutsche Bank also communicated and coordinated with employees of other banks and financial institutions regarding their respective rate contributions in advance of an IBOR submission. On September 7, 2006, a London desk head attempted to obtain a low EURIBOR submission from an external banker at Barclays, “I’m begging u, don’t forget me… pleassssssssssssssseeeeeeeeee… I’m on my knees…”  The external banker replied, “I told them 1 m up is that right?”  The London desk head continued, “please pal, insist as much as you can… my treasury is taking it to the sky… we have to counter balance it… I’m beggin u… can u beg the [a panel bank] guy as well?”   The external banker agreed, “ok, I’m telling him.”

As a bank’s IBOR rates are intended to correspond to the cost at which the bank concludes it can borrow funds, the rates are an indicator of a bank’s financial health.  If a bank’s submission is high, it suggests that the bank is, or would, pay a high amount to borrow funds.  This could indicate a liquidity problem and, thus, that the bank is experiencing financial difficulty.

Traders and submitters at Deutsche Bank were aware that the IBOR rates did not accurately reflect their definitions.  On August 21, 2008, a vice president wrote to an external banker employed at Merrill Lynch, “tibor going down or not?”  The external banker replied, “tibor will go down slightly but not much… euroyen tibor isn’t really reflective of actual money market condition in japan… people just randomly make those numbers up… pretty much like libors tho!”

On July 16, 2009, a managing director and the Head of the London Money Market Derivatives desk discussed the strength and accuracy of the Euro LIBOR panel in comparison to the EURIBOR panel.  The managing director asked, “u think the quality of the euro-libor panel is 4.5bps better than euribor?”  The Head of the London Money Market Derivatives desk responded yes, and the managing director replied, “not so sure, i have a hard time to believe if so many banks say they can better than the market while they are a part of it.”  The Head of the London Money Market Derivatives desk stated, “theyre all lying anyway.”  The managing director replied, “there is a philosophical saying: ‘one greek says: “all greeks are lying” who do u trust?”

On September 4, 2009, a vice president wrote to a trader regarding LIBOR and TIBOR, stating, “am purring 34 for 3m libor and I think am far too high… JPM [JP Morgan Chase] is putting 41 for tibor… I do not understand how come we can have 3m tibor/cash at 56 at DB… DB is the among the lowest libor contribution in all ccys… UBS is corrup/manipulator in tibor fixing… i think putting such a high tibor damage the reputation of deutsche bank… Second, It is not because all the tibors setters are corrupt/manipulators that deutsche bank has to be aswell… It is not because the japanese banks are manipulating the tibor fixing that DB has to do it as well… Tibor is a corrupt fixing and DB is part of it!”

From approximately 2007 through 2009, a number of large international banks were receiving negative press coverage concerning their high and potentially inaccurate LIBOR submissions.  Certain articles questioned particular banks’ liquidity position regarding the high LIBOR submissions and, as a result, the banks’ share prices fell.  Various Deutsche Bank senior managers circulated and discussed these articles.

On October 4, 2007, the Head of Short Term Interest Rate Trading in Australia and New Zealand forwarded an article, which reported a rumor that a large European bank was struggling for financing, including to senior management, commenting on the instability of the market, specifically in regards to bank illiquidity, and commented, “This market has the feel that we are about to have another run and panic on funding in my opinion just a gut feeling looking at the behavior of LIBORS if we look at the 3mth fix over the lst few days since we have gone over the TURN of the year there has been a bit of pressure… this feels like the period where we were edging up ever so slight back in early august where we fixed at 5.36 for months on end and then started edging up before the panic set in.” Later that day, a group head within the Global Finance and Foreign Exchange Unit forwarded the email to  a London desk head, directing, “Make sure our libors are on the low side for all ccys.”

Terminations and Bans of Individual Deutsche Bank Employees

As a result of the investigation, numerous employees that were involved in the wrongful conduct discussed in this Order, including those in management positions, have been terminated, disciplined or are otherwise no longer employed by the Bank, as a result of their misconduct.

However, certain employees involved in the wrongful conduct remain employed at the Bank.  The Department orders the Bank to take all steps necessary to terminate seven employees, who played a role in the misconduct but who remain employed by the Bank: one London-based Managing Director, four London-based Directors, one London-based Vice President, and one Frankfurt-based Vice President.

Additionally, ten of the individuals centrally involved in the misconduct were previously terminated as a result of the investigation.  Four of these employees were reinstated pursuant to a German Labour Court determination, and two of them remain at the Bank. Those employees that were reinstated due to the German Labour Court decision who remain at the Bank shall not be allowed to hold or assume any duties, responsibilities, or activities involving compliance, IBOR submissions, or any matter relating to U.S. or U.S. Dollar operations.

Superintendent Lawsky thanks the U.S. Department of Justice, the Commodities Futures Trading Commission, and the U.K. Financial Conduct Authority for their work and cooperation in this investigation.

To view a copy of the NYDFS order regarding Deutsche Bank, please visit, link.



© 2010-17 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.


Nomura, RBS ‘crap’ emails come into play in $1 billion mortgage bond trial

Nomura, RBS ‘crap’ emails come into play in $1 billion mortgage bond trial


NEW YORK (Reuters) – In 2007, a Royal Bank of Scotland Group Plc employee emailed his boss with his view of a sample of mortgages underlying a bond that the bank was underwriting: “This one is crap.”

Asked about it this week in Manhattan federal court, Brian Farrell, the employee, said he did not recall the deal. But a U.S. regulator cited the email as evidence that Nomura Holdings Incand RBS made false statements about mortgage securities they sold to Fannie Mae and Freddie Mac.

The email and others like it are part of a $1.1 billion lawsuit by the Federal Housing Finance Agency against Nomura and RBS that went to trial this month. The messages add to a litany of arguably embarrassing electronic musings by bank employees that have resurfaced in litigation over the 2008 financial crisis.


© 2010-17 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.


Ocwen Financial Intends to Sell Additional $25 Billion Portfolio of Mortgage Servicing Rights to Nationstar

Ocwen Financial Intends to Sell Additional $25 Billion Portfolio of Mortgage Servicing Rights to Nationstar

Source: OCWEN

March 24, 2015

Ocwen Financial Intends to Sell Additional $25 Billion Portfolio of Mortgage Servicing Rights to Nationstar


ATLANTA, March 24, 2015 (GLOBE NEWSWIRE) — Ocwen Financial Corporation (NYSE:OCN) announced today that its subsidiary, Ocwen Loan Servicing, LLC (“Ocwen”) and Nationstar Mortgage LLC, an indirectly-held, wholly-owned subsidiary of Nationstar Mortgage Holdings Inc. (NYSE:NSM) (collectively “Nationstar”) have agreed in principle to the sale by Ocwen of residential mortgage servicing rights on a portfolio consisting of approximately 142,000 loans owned by Freddie Mac and Fannie Mae with a total principal balance of approximately $25 billion. Subject to a definitive agreement, approvals by Freddie Mac, Fannie Mae and FHFA and other customary conditions, Ocwen and Nationstar expect the transaction to close before mid-year.

“This transaction, on top of the one announced in February between Ocwen and Nationstar, furthers our announced corporate strategy and demonstrates the strong working relationship we have developed with Nationstar,” said Ron Faris, Chief Executive Officer of Ocwen.

“This transaction builds upon our strong track record of portfolio acquisitions while serving the needs of homeowners, and we look forward to expeditiously closing and boarding this portfolio,” said Jay Bray, Chief Executive Officer of Nationstar. “We will continue to work cooperatively with Ocwen as they evaluate the sale of additional agency portfolios and look forward to continuing discussions with all counterparties.”

About Ocwen Financial Corporation

Ocwen Financial Corporation is a financial services holding company which, through its subsidiaries, is engaged in the servicing and origination of mortgage loans. Ocwen is headquartered in Atlanta, Georgia, with offices throughout the United States and support operations in India and the Philippines. Utilizing proprietary technology, global infrastructure and superior training and processes, Ocwen provides solutions that help homeowners and make our clients’ loans worth more. Ocwen may post information that is important to investors on its website (

About Nationstar

Based in Dallas, Texas, Nationstar earns fees through the delivery of quality servicing, origination and transaction based services related principally to single-family residences throughout the United States. Additional corporate information is available on the investors tab at

Forward Looking Statements

This news release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements by their nature address matters that are, to different degrees, uncertain. Forward-looking statements and involve a number of assumptions, risks and uncertainties that could cause actual results to differ materially.

Important factors that could cause actual results to differ materially from those suggested by the forward-looking statements include, but are not limited to, the following: adverse effects on our business as a result of recent regulatory settlements; reactions to the announcement of such settlements by key counterparties; increased regulatory scrutiny and media attention, due to rumors or otherwise; uncertainty related to claims, litigation and investigations brought by government agencies and private parties regarding our servicing, foreclosure, modification and other practices; any adverse developments in existing legal proceedings or the initiation of new legal proceedings; our ability to effectively manage our regulatory and contractual compliance obligations; the adequacy of our financial resources, including our sources of liquidity and ability to fund and recover advances, repay borrowings and comply with debt covenants; our servicer and credit ratings as well as other actions from various rating agencies, including the impact of recent downgrades of our servicer ratings; volatility in our stock price; the characteristics of our servicing portfolio, including prepayment speeds along with delinquency and advance rates; our ability to contain and reduce our operating costs; our ability to successfully modify delinquent loans, manage foreclosures and sell foreclosed properties; uncertainty related to legislation, regulations, regulatory agency actions, government programs and policies, industry initiatives and evolving best servicing practices; as well as other risks detailed in Ocwens reports and filings with the Securities and Exchange Commission (SEC), including its annual report on Form 10-K/A for the year ended December 31, 2013 (filed with the SEC on 08/18/14) and its quarterly report on Form 10-Q for the quarter ended September 30, 2014 (filed with the SEC on 10/31/14). Anyone wishing to understand Ocwens business should review its SEC filings. Ocwens forward-looking statements speak only as of the date they are made and, except for our ongoing obligations under the U.S. federal securities laws, we undertake no obligation to update or revise forward-looking statements whether as a result of new information, future events or otherwise.

CONTACT: FOR FURTHER INFORMATION CONTACT: Investors: Stephen Swett T: (203) 614-0141 E: Media: John Lovallo T: (917) 612-8419 E: Dan Rene T: (202) 973-1325 E:
© 2010-17 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.


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