Attorneys General Complaint on Mortgage Practices
On March 12, a complaint was filed in the U.S. district court for the District of Columbia by the DOJ and the attorneys general of 49 states and the District of Columbia against Bank of America, JPMorgan Chase, Wells Fargo, Citigroup, and Ally. The complaint, which was filed as part of the $25 billion mortgage servicing and foreclosure settlement entered into on February 9, contains allegations of: (i) unfair and deceptive loan servicing consumer practices; (ii) unfair and deceptive foreclosure processing consumer practices; (iii) unfair and deceptive loan origination consumer practices; (iv) violations of the False Claims Act; (v) violation of FIRREA; (vi) violation of the Servicemembers Civil Relief Act; and (vii) bankruptcy misconduct. Consent judgments implementing the terms of the February 9 settlement agreement were also filed in the U.S. district court in Washington, D.C. Complaints and Settlements. Orrick Alert on the February 9 Settlement.
Fed Results of Stress Tests
On March 13, the Fed announced summary results of stress tests under the Comprehensive Capital and Analysis Review, a supervisory assessment by the Fed of the capital planning processes and capital adequacy of 19 large, complex bank holding companies.
Fed Release. Methodology and Results.
Fed Methodology for Stress Tests
On March 12, the Fed described its methodology for the stress tests in the 2012 Comprehensive Capital Analysis and Review. The supervisory stress scenario, which is not the Fed's forecast for the economy, depicts a severe recession in the U.S., including a peak unemployment rate of 13%, a 50% drop in equity prices, and a 21% decline in housing prices. The results for the 19 bank holding companies that participated in the tests will be released on March 15. Fed Release.
FHFA Rule on Private Transfer Fees
On March 15, the FHFA published a final rule on private transfer fees. The rule limits Fannie Mae, Freddie Mac and the Federal Home Loan Banks from dealing in mortgages on properties encumbered by certain types of private transfer fee covenants and in certain related securities. The final rule applies only to private transfer fee covenants created on or after February 8, 2011, the date of publication of the proposed rule. Regulated entities must comply with the final rule by July 16. FHFA Release.
SEC Analysis of Credit Default Swap Market Data
On March 15, the SEC released an analysis of market data related to credit default swap transactions. The analysis is available for review and comment as part of the comment file for rules the SEC jointly proposed in December 2010, along with the CFTC, to further define the terms ""swap dealer," "security-based swap dealer," "major swap participant," "major security-based swap participant," and "eligible contract participant." SEC Release. SEC Analysis.
Mortgage-Backed Securities Division of FICC to be Central Clearinghouse for MBS
On March 9, the SEC approved an amended proposed rule change, allowing the Mortgage-Backed Securities Division of the Fixed Income Clearing Corporation to provide guaranteed settlement and central counterparty services. SEC Release.
MHA Program Supplemental Directive
On March 9, Supplemental Directive 12-02 was issued, extending the deadline for the MHA Program to the end of 2013 and expanding the population of homeowners that may be eligible for HAMP. On March 12, a correction to the Supplemental Directive was issued to clarify that Home Affordable Unemployment Program forbearance plans are not eligible for servicer incentive compensation.
Supplemental Directive. Supplemental Directive Correction.
MSRB Request for Comment on "Not Reoffered" Designation
On March 13, the MSRB requested comment on a proposal to prohibit brokers, dealers, and municipal securities dealers from using the term "not reoffered" or "NRO", which indicates that certain maturities of a new issue are not offered to investors, in any written communication unless it also includes the initial offering price or yield information about the municipal securities. Comments are due by April 10. MSRB Release. Request for Comment.
On March 14, S&P revised its criteria for using third-party due diligence results to assess U.S. residential loan types, including prime, Alt-A, HELOC and subprime. Changes from the previous criteria include (i) provision for modified sampling for flow originations; (ii) provision for accepting data in the ASF file format; (iii) removal of the potential link between an RMBS rating and the rating of the representations and warranties provider, as well as the resulting impact on due diligence sampling; and (iv) clarification regarding the materiality of regulatory compliance findings. S&P Report.
On March 14, S&P revised representations and warranties criteria for U.S. RMBS. S&P Report.
On March 13, S&P revised its default and correlation parameters for sovereign debt assets in CDOs. S&P Report.
On March 13, S&P released its methodology for CDOs and pooled TOBs backed by U.S. municipal debt. S&P Report.
On March 13, Fitch published an exposure draft on revised criteria for counterparty risk in covered bond programmes.
Fitch Exposure Draft.
On March 12, Fitch published an exposure draft of its criteria for analyzing counterparty risk in structured finance transactions. Feedback is requested by April 13. Fitch Release. Fitch Exposure Draft.
On March 12, S&P released its methodology for U.S. federal future flow securitizations. S&P Release.
On March 12, S&P requested comment by April 12 on proposed criteria for evaluating enterprises' management and governance.
Note: Free registration is required for Fitch and S&P releases and reports.
Capital One, Chevy Chase, and Credit Suisse Sued over $168.6 Million in RMBS
On March 8, 2012, a group of plaintiffs led by German bank Landesbank Baden-Wuerttemberg filed a summons with notice in New York state court against Capital One Financial Corp., Chevy Chase Funding LLC, and Credit Suisse Securities (USA) LLC. The plaintiffs allege that the defendants made material misrepresentations and omissions in the offering materials for $168.6 million worth of RMBS allegedly purchased by plaintiffs. Specifically, plaintiffs claim that the materials contained misrepresentations concerning the legal validity of the assignments of the underlying mortgage loans to trusts and the legal validity of the trusts to receive interest and principal payments on the loans. Plaintiffs assert claims for common-law fraud, fraudulent inducement, negligent misrepresentation, aiding and abetting fraud, declaratory judgment, rescission, restitution, and mutual mistake. Plaintiffs are seeking at least $168.6 million in damages plus accrued interest and punitive damages. Summons.
Assured GuarantySues Bear Stearns and JPMorgan
On March 15, 2012, Assured Guaranty Corp. filed a complaint in New York state court against Bear Stearns, its affiliate, EMC Mortgage LLC, and its successor, JPMorgan, alleging that Bear Stearns misrepresented the risk of RMBS and fraudulently induced Plaintiff to guarantee those RMBS. The complaint relies on alleged statements of confidential informants, including former employees of Bear Stearns, GreenPoint Mortgage Funding, Inc., and Watterson Prime LLC. Plaintiff alleges that the securities involved in the transactions at issue have experienced losses of more than $75 million, and that Plaintiff has paid unreimbursed claims of more than $43 million.
Plaintiff asserts claims for fraudulent inducement, various breaches of contract, and for indemnification, claims payments, costs, and fees. Complaint.
Allstate Suit Against Citigroup Remanded to State Court
On March 13, 2012, Judge Richard J. Sullivan of the Southern District of New York remanded a $200 million RMBS suit against Citigroup to state court. Citigroup asserted federal jurisdiction under the Edge Act, and under the doctrine of "related to" bankruptcy. Judge Sullivan rejected both arguments. With respect to the Edge Act, Judge Sullivan concluded that no jurisdiction existed because the one federally-chartered entity defendant was not a party to the one securitization that contained mortgage loans secured by overseas properties. With respect to the issue of related to bankruptcy jurisdiction, the Court found that defendants could not establish any impact that the outcome of this case could have on the bankruptcy proceedings concerning American Home Mortgage Holdings, Inc. ("AHM"), which had originated some of the loans backing the RMBS, particularly because AHM's reorganization plan already had been approved and defendants failed to establish that their claim in the AHM bankruptcy is not already fully liquidated. Order.
HSBC Agrees to Settle Potential NCUA Claims for $5.25 Million
On March 12, 2012, the National Credit Union Administration ("NCUA") announced that it reached a settlement with HSBC concerning potential claims arising out of HSBC's sale of RMBS to five failed credit unions. HSBC agreed to pay $5.25 million, and admitted no fault or liability in connection with the settlement. This is the third pre-litigation settlement that NCUA has reached in connection with the potential RMBS claims of failed credit unions. Press Release.