Insurer Financial Guaranty Insurance Co. is suing several Ally Financial Inc. subsidiaries, accusing the government-owned lender of lying about the quality of mortgages it packaged into securities.
Three lawsuits, filed Tuesday in New York State Supreme Court, claim GMAC Mortgage, Residential Capital and other affiliates made “material misrepresentations and omissions” about the “quality of the tens of thousands of mortgage loans” packaged into the securities. FGIC said it issued insurance policies to Ally for the securities based on this information.
This will never end and the fraud will go on forever with no end in sight.
REUTERS-
Bond insurer Assured Guaranty Ltd filed new claims against JPMorgan Chase & Co over a mortgage-backed security sold by Bear Stearns, saying more than 35 witnesses have come forward to testify about how loans in the $337 million transaction were misrepresented.
The lawsuit contends Bear Stearns and its EMC mortgage arm, acquired by JPMorgan after their collapse in 2008, knew the pool of more than 6,000 home-equity lines of credit that served as collateral for the investment was filled with defective loans.
JPMorgan Chase & Co., UBS AG and Deutsche Bank AG are being probed in an expanded investigation by New York Attorney General Eric Schneiderman into mortgage securitization, according to a person familiar with the matter.
Four bond insurers also were subpoenaed: Ambac Financial Group Inc., MBIA Inc., Syncora Holdings Ltd. and Assured Guaranty Ltd., according to the person, who couldn’t be identified because the probe isn’t public.
State attorneys general are stepping up their investigations of mortgage-industry practices by probing for potential misdeeds when banks originated home loans and packaged them into securities, according to people familiar with the examinations.
New York State Attorney General Eric Schneiderman has issued subpoenas to four bond-insurance companies as part of his expanding probe of mortgage-securitization practices, people familiar with the matter said.
At the same time, California Attorney General Kamala D. Harris is expected to announce Monday a new law-enforcement effort aimed at mortgage-industry practices, people familiar with the initiative said. The effort will cover a range of activities, from loan origination to the packaging of mortgages into securities, and will include both civil and criminal prosecutions, these people said.
JPMorgan Chase & Co. (JPM) received a subpoena from the U.S. Securities and Exchange Commission over failed mortgages, a person familiar with the investigation said, as the agency probes banks including Credit Suisse Group AG (CS) for allegedly failing to share refunds from sellers of faulty debt.
“Credit Suisse is now the subject of an investigation by the Securities and Exchange Commission, which issued a subpoena this week seeking the same types of documents as MBIA seeks with this motion,” the bond insurance unit of Armonk, New York-based MBIA Inc. (MBI), said in the filing in New York State Supreme Court. The document, dated April 29, was filed today.
* Syncora can pursue claims based on entire loan pool
* Insurer need not show breaches of individual loans
NEW YORK, March 28 (Reuters) – JPMorgan Chase & Co (JPM.N) could be forced to repurchase thousands of home equity loans, after a judge ruled in favor of a bond insurer that argued it could build its case based on a sampling of loans.
The ruling against EMC Mortgage Corp, once a unit of Bear Stearns Cos, comes amid many lawsuits seeking to force banks to buy back tens of billions of dollars of mortgage and other home loans that went sour. JPMorgan bought Bear Stearns in 2008.
You may read the court Order below:
SYNCORA GUARANTEE INC., f/k/a XL Capital Assurance Inc.,
v. EMC MORTGAGE CORP.,
No. 09 Civ. 3106 (PAC).
USDC, S.D. New York.
March 25, 2011.
OPINION & ORDER
HONORABLE PAUL A. CROTTY, United States District Judge.
This breach of contract lawsuit arises out of a securitization transaction (“Transaction”), involving 9,871 Home Equity Line of Credit (“HELOC”) residential mortgage loans, which were purchased and used as collateral for the issuance of $666 million in publicly offered securities (“Notes”). (Mem. in Supp. Mot. to Am. 3). Defendant EMC Mortgage Corp. (“EMC”) aggregated the HELOCs, sold the loan pool to the entity that issued the Notes, and contracted with Plaintiff Syncora Guarantee Inc., formerly known as XL Capital Assurance Inc., (“Syncora”) to provide a financial-guaranty insurance policy protecting the investors in the Note. (Id.) Syncora claims that EMC breached its representations regarding 85% of the loan pool. It now moves for partial summary judgment or, alternatively, a ruling in limine, that it was not required to comply with a repurchase protocol as the exclusive remedy for all such claims. The Court GRANTS the motion for partial summary judgment on the grounds that, in light of the broad rights and remedies for which Syncora contracted, any such remedial limitation would have to be expressly stated.
Suit Seeks $30 Million in Compensatory and $90 Million in Punitive Damages from Goldman
Sachs Over Its Role in Developing and Marketing the Synthetic CDO “ABACUS”
New York, NY — January 6, 2011 — ACA Financial Guaranty Corporation (ACA), a monoline
bond insurance company now operating in run off, filed suit today against Goldman Sachs & Co.
(Goldman Sachs) for fraud and unjust enrichment in connection with a synthetic collateralized
debt obligation (CDO) called ABACUS 2007-AC1 (ABACUS), which Goldman Sachs
developed and sold on behalf of its hedge fund client Paulson & Co. Inc. (Paulson) in 2007.
ACA was misled by Goldman’s fraudulent activities and is seeking $30 million in compensatory
and $90 million in punitive damages.
According to the complaint, filed in the Commercial Division of the Supreme Court of the State
of New York, New York County, this fraud action arises from the egregious conduct of Goldman
Sachs in developing and marketing ABACUS based on a portfolio of investment securities
selected largely by its hedge fund client, Paulson. Goldman Sachs’s scheme was to design
ABACUS to fail, so that Paulson could reap huge profits by shorting the portfolio and Goldman
Sachs could reap huge investment banking fees. Goldman Sachs fraudulently induced ACA to
take a long position in and provide guaranty insurance for ABACUS. Goldman Sachs did so by
deceiving ACA into believing that Paulson also was to be a long investor in ABACUS. In fact,
as Goldman Sachs knew, Paulson intended instead to take an enormous short position in
ABACUS, reaping nearly $1 billion when the portfolio failed.
As the complaint alleges: “ABACUS was worthless at the time Goldman Sachs marketed it to
ACA. Had Paulson’s true role as a short investor selecting the portfolio been known, neither
ACA nor anyone else would have taken a long position in it. Because of Goldman Sachs’s
deceit — which led ACA to reasonably believe that ABACUS was a valuable product selected by
the equity investor with identical objectives — ACA invested in what was in fact a worthless
product. Goldman Sachs engaged in this egregious misconduct notwithstanding that it expressly
acknowledged that its participation presented ‘reputational risk’ and after at least one other major
investment bank declined to participate for that very reason.” Goldman Sachs has since settled
SEC civil charges arising out of this fraudulent conduct, agreeing to pay a $550 million fine.
ACA is represented by Marc E. Kasowitz of Kasowitz, Benson, Torres & Friedman LLP.
About ACA Financial Guaranty Corporation
Founded in 1997, ACA Financial Guaranty Corporation is a monoline bond insurance company
licensed in 50 states and 5 territories and regulated by the Maryland Insurance Administration.
On August 8, 2008, the Company and counterparties to its structured finance products reached an
agreement on a restructuring plan for ACA. The plan, approved by the Maryland Insurance
Administration, provided for settlement of the structured finance obligations and protection for
ACA’s municipal policyholders. ACA will operate as a runoff insurance company and focus on
actively monitoring its remaining insured municipal obligations. ACA’s portfolio consists of
approximately 700 policies guarantying timely payment of principal and interest on more than $7
billion of generally high yield municipal bonds.
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