Orrick's Financial Industry Week in Review

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Financial Industry Developments

Housing Survey Takes Deep Dive into U.S. Housing Stock

On October 16, HUD released the American Housing Survey (AHS), which takes a deep look at the U.S. housing stock including detailed information on housing costs and quality.  The 2013 AHS includes new information about neighborhood social life, use of public transportation, and the extent to which American families are prepared for disaster.  ReleaseSurvey.

CFPB Report Finds Distressed Private Student Loan Borrowers Driven Into Default

On October 16, the CFPB released a report highlighting complaints by struggling private student loan borrowers who describe being driven into default.  ReleaseReport.

CFTC Staff Announces Self-Executing Registration No-Action Relief for Delegating CPOs

On October 15, CFTC Division of Swap Dealer and Intermediary Oversight (DSIO) announced that it is providing self-executing registration no-action relief for certain commodity pool operators (CPOs) who delegate certain activities (Delegating CPOs) to a registered CPO and meet the conditions specified.  The relief was made available in CFTC Staff Letter 14-126ReleaseStaff Letter.

The Federal Reserve Bank of New York Releases Survey of Consumer Expectations

On October 14, the Federal Reserve Bank of New York released results from its September 2014 Survey of Consumer Expectations (SCE).  The SCE contains information about how consumers expect overall inflation and prices for food, gas, housing and education to behave.  It also provides insight into Americans' views about job prospects and earnings growth and their expectations about future spending and access to creditReleaseSurvey.

U.S. and U.K. Officials Meet to Discuss Key Components for the Resolution of a Global Systemically Important Bank

On October 13, the heads of the Treasuries and leading financial regulatory bodies in the United States and United Kingdom participated in an exercise designed to further the understanding, communication, and cooperation between U.S. and U.K. authorities in the event of the failure and resolution of a global systemically important bank, or G-SIB. The exercise demonstrates the continued commitment of the United States and the United Kingdom since the financial crisis to promote a safer and sounder financial system by cooperating to address issues involved in the orderly resolution of large and complex financial institutions without cost to taxpayers.  Release.

Federal Reserve Board and FDIC Welcome ISDA Announcement

On October 11, the Board of Governors of the Federal Reserve System and the FDIC applauded the International Swaps and Derivatives Association (ISDA) for the agreement of a new resolution stay protocol.  The resolution stay amendments of the protocol are intended to facilitate an orderly resolution of a major global banking firm and reduce the potential negative impact of the resolution on financial stability by giving the bankruptcy court or resolution authority the ability to prevent early termination of financial contracts of the firm's global subsidiaries.  Release.

Rating Agency Developments

On October 13, Moody's released is rating methodology for U.S. Health Insurance CompaniesRelease.

On October 10, DBRS published its methodologies regarding the following: (i) U.S. Structured Finance Transactions, (ii) U.S. Auto Fleet Lease Securitizations and (iii) U.S. ABS Surveillance MethodologyReleaseReleaseRelease.

Note: Free registration is required for rating agency releases and reports.

RMBS and Other Securities Litigation

First Department Affirms Dismissal of Ambac's Contract Claims Against EMC

On October 16, the Appellate Division, First Department of the Supreme Court of New York affirmed the dismissal of Ambac Assurance Corporation's breach of contract claims against EMC Mortgage arising out of an RMBS transaction that Ambac insured.  The court held that Ambac, as a third-party beneficiary to the pooling and servicing agreement for the transaction, lacked standing to enforce the repurchase protocol set forth in the PSA, which is the sole available remedy for alleged breaches of representations and warranties related to mortgage loans in the transaction.  Instead, the PSA provides the trustee the exclusive right to enforce the repurchase protocol.  Opinion.

Court Grants in Part and Denies in Part JPMorgan's Motion to Dismiss RMBS Action

On October 16, Judge Susan J. Dlott of the United States District Court for the Southern District of Ohio granted in part and denied in part several JPMorgan entities' motion to dismiss a complaint filed by several Western & Southern Life Insurance entities relating to $202 million in RMBS certificates.  Western & Southern asserted 14 causes of action, including claims for violations of the Ohio Securities Act, the Ohio RICO statute, the federal Securities Act of 1933, and for common law fraud, conspiracy, and tortious interference with contract.  The court dismissed Ohio Securities Act claims as to certain certificates, finding them time barred under Ohio's five-year statute of repose.  The court declined to dismiss the remaining Ohio Securities Act claims as untimely, holding that when Western & Southern was put on notice of its claims for statute of limitations purposes was a question of fact.  The court also held that Western & Southern adequately alleged falsity and scienter with respect to alleged misstatements concerning underwriting guidelines, appraisals, owner occupancy, credit ratings, and title transfer.  As to the federal Securities Act claims, the court held that they were time barred under the applicable three-year statute of repose and that Western & Southern could not rely on American Pipe tolling to extend the period for filing its claims.  The court dismissed the tortious interference with contract claim on the ground that the claim is not available against a party to the contract at issue.  Finally, the Court held that the Ohio RICO claims were sufficiently pled.  Order.

Greenpoint's Motion to Dismiss Loan Misrepresentation Suit Granted in Part

On October 15, Judge Donovan Frank of the U.S. District Court for the District of Minnesota, granted in part and denied in part Greenpoint Mortgage Funding's motion to dismiss a lawsuit filed by Residential Funding Co., an affiliate of Residential Capital.  Residential Funding alleged that Greenpoint breached representations and warranties in connection with $88 million in mortgage loans it sold to Residential Funding and that Residential Funding securitized.  Following a bankruptcy court's 2013 approval of a global settlement of Residential Funding's RMBS-related liabilities, Residential Funding sued Greenpoint seeking indemnification and damages for breach of contract.  Judge Frank dismissed the breach of contract claim as time barred under Minnesota's six-year statute of limitations because the alleged breaches at issue occurred when the loans were acquired, which was more than six years before Residential Funding filed suit.  Judge Frank did not dismiss the indemnification claim, which Greenpoint argued was not properly assigned to Residential Funding, because whether Residential Funding was the proper plaintiff was a factual question that could not be resolved on the pleadings.  Order.

JPMorgan Sued Over $959 Million RMBS Trust

On October 10, the Bank of New York Mellon, suing as trustee for the J.P. Morgan Mortgage Acquisition Trust, Series 2006-WMC3 trust, filed a summons with notice in the Supreme Court for the State of New York against WMC Mortgage LLC, J.P. Morgan Mortgage Acquisition Corp., and JPMorgan Chase Bank.  The trustee alleges that the defendants breached contractual representations and warranties and discovered such breaches during origination, due diligence, and servicing of the loans, but failed to adhere to their notice and repurchase obligations with respect to at least 334 of mortgage loans in the $959 million RMBS trust.  Bank of New York Mellon also asserts that JPMorgan Chase Bank, as servicer, breached its servicing obligations through, among other things, ineffective collection activities, delays in foreclosure, and improper modifications.  The trustee seeks damages of no less than $475 million related to the alleged contractual breaches, rescissory damages, an order of specific performance of repurchase, reimbursement of expenses, and pre- and post-judgment interest.  Summons with Notice.

European Financial Industry Developments

IOSCO and CPMI Report on Recovery of Financial Market Infrastructures

On October 15, following a consultation launched in August 2013, the International Organization of Securities Commission (IOSCO) and the Committee on Payments and Market Infrastructure (CPMI) issued a joint report on the recovery of financial market infrastructures (FMIs).

The report supplements the international standard for FMIs published by IOSCO and CPMI in April 2012 and contains guidance to FMIs on the means of developing plans to enable recovery from threats to viability and financial strength which could prevent them from providing critical services to their participants and the markets they serve.  The report also provides guidance to relevant authorities on carrying out their responsibilities in connection with the development and implementation of recovery plans.  Report.

ESMA Securities and Markets Stakeholder Group Responds to ESMA Consultations on Draft Technical Standards and Technical Advice on the Market Abuse Regulation

On October 13, the Securities and Markets Stakeholder Group (SMSG) of the European Securities and Markets Authority (ESMA) published its response to the July consultations published by ESMA on draft technical standards and draft regulatory standards (RTS), implementing technical standards (ITS) on the Market Abuse Regulation (Regulation 596/2014) (MAR) and draft technical advice on possible delegated acts concerning MAR.

SMSG has provided, in its response, advice to ESMA on the nine topics covered in the ESMA consultations including identifying key issues in respect of market soundings, insider lists, investment recommendations and manager transactions. The SMSG also sets out general comments on ESMA's approach to building a single rulebook on market abuse.

The closing date for responses on the ESMA consultations was October 15.  SMSG Response.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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