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Fed Policy Statement on Rental of OREOs
On April 5, the Fed released a policy statement on the rental of residential other real estate owned properties (OREOs) to remind banking organizations and examiners that Fed regulations and policies permit rentals as part of an orderly disposition strategy and to outline supervisory expectations for residential rental activities. Release. Policy Statement.
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Fed Final Rule to Simplify Reserve Requirements and Reduce Costs
On April 5, the Fed issued a final rule to simplify the administration of reserve requirements and reduce administrative and operational costs for depository institutions and Federal Reserve Banks. Release. Reg D Amendment Final Rule. Reg J Amendment Final Rule.
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FSOC Rule on Oversight of Nonbank Financial Companies
On April 3, the FSOC approved a final rule and interpretive guidance on its authority to require supervision and regulation of certain nonbank financial companies. Section 113 of the Dodd-Frank Act authorizes the FSOC to require a company to be subject to Fed supervision if the FSOC determines that material financial distress at the company, or the characteristics of the company, could pose a threat to U.S. financial stability. Treasury Release. Final Rule.
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Fed Mortgage Consent Order Against Morgan Stanley
On April 3, the Fed announced a Consent Order against Morgan Stanley regarding an alleged pattern of misconduct and negligence in residential mortgage loan servicing and foreclosure processing at its subsidiary, Saxon Mortgage Services, Inc. The Consent Order requires Morgan Stanley to retain an independent consultant to review foreclosure proceedings by Saxon in 2009 and 2010. If Morgan Stanley re-enters the mortgage servicing business while the Consent Order is in effect, it will be required to implement servicing and foreclosure practices comparable to what the mortgage servicers subject to the 2011 enforcement actions were required to implement. Fed Release.
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Mortgage Servicing and Foreclosure Consent Judgments Approved
On April 4, U.S. District Court Judge Collyer approved the previously announced consent judgments resolving claims by the DOJ and 49 state AGs against Ally, Bank of America, Citi, JPMorgan and Wells Fargo relating to alleged mortgage servicing and foreclosure practices. Ally Financial Consent Judgment. Bank of America Consent Judgment. Citigroup Consent Judgment. JP Morgan Consent Judgment. Wells Fargo Consent Judgment.
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Fed Request for Comments on "Predominantly Engaged in Financial Activities"
On April 2, the Fed requested comment on a proposed amendment to its February 11 notice of proposed rulemaking to establish requirements for determining whether a company is "predominantly engaged in financial activities". Based on comments received on the proposal, the amendment is intended to clarify the definition of financial activities for purposes of Title I of the Dodd-Frank Act. Commenters to the February 11 proposal asked whether conditions imposed under the Bank Holding Company Act and regulations should be considered in defining financial activities under Title 1. Comments must be submitted by May 25. Fed Release. Request for Comment.
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Exemptions for Security-Based Swaps
On March 30, the SEC issued final rules adopting exemptions for certain security-based swaps under the Securities Act (other than the Section 17(a) anti-fraud provisions), the Securities Exchange Act, and the Trust Indenture Act. Exempt security-based swaps must be issued by certain clearing agencies and satisfy certain conditions. The final rules are effective April 16. Final Rules.
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RMBS Investors File $250 Million Derivative Suit Against HSBC
On March 28, 2012, investors in Ace Securities Corp. Home Equity Loan Trust, Series 2006-SL2 commenced a derivative lawsuit, purportedly on behalf of the Trust, against HSBC Bank, as trustee, and DB Structured Products, Inc., an affiliate of Deutsche Bank, the loan originator. In a summons with notice filed in the Supreme Court of the State of New York, plaintiffs state that they seek $250 million in damages for breach of repurchase obligations, based on alleged misrepresentations about the quality of the loans in the Trust's collateral pool and borrowers' ability to pay. The causes of action are for breach of contract and specific performance. Complaint.
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Landesbank Baden-Wüttenberg Files $455 Million RMBS Suit Against Countrywide
On March 29, 2012, German bank Landesbank Baden-Wurttemberg ("LBW") filed a suit against Countrywide Financial Corp. and related entities in the Supreme Court of the State of New York alleging that Countrywide misrepresented the underwriting standards and appraisals for the loans underlying $455 million of RMBS allegedly purchased by LBW in eleven offerings between 2005 and 2007. LBW further alleges that Countrywide misrepresented information to credit rating agencies resulting in faulty ratings, misrepresented that the issuing trusts possessed good title to the underlying loans, and ignored underwriting deficiencies by other originators whose loans it purchased. LBW alleges claims for fraud, aiding and abetting fraud, negligent misrepresentation, successor and vicarious liability, and violations of Sections 11, 12(a)(2), and 15 of the Securities Act of 1933. LBW seeks unspecified money damages and rescission. Complaint.
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Dexia Sues Merrill Lynch Over $527 Million in RMBS
On March 29, 2012, Dexia filed suit against Merrill Lynch & Co. and related entities in the Supreme Court of the State of New York in connection with $527 million in RMBS it allegedly purchased in fifteen offerings in 2006 and 2007. Dexia alleges that Merrill Lynch made misrepresentations about and ignored the deficiencies in the underwriting standards and appraisal practices used by the originators of the loans underlying the RMBS, as well as that the credit ratings were inflated due to false information allegedly provided to the ratings agencies by Merrill. The causes of action alleged are fraud, aiding and abetting fraud, and negligent misrepresentation. Dexia, which is represented by the same counsel who represent LBW in its suit against Countrywide, seeks unspecified money damages and rescission. Complaint.
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Federal Court Dismisses Claims Against Bear Stearns Based on RMBS Credit Ratings
On March 30, 2012, Judge Laura Taylor Swain of the U.S. District Court for the Southern District of New York dismissed claims based on credit ratings brought by several retirement and pension funds against Bear Stearns & Co., Inc. and related affiliates in connection with the sale of RMBS pass-through certificates. Plaintiff brought claims under Section 11, 12(a)(2) and 15 of the Securities Act of 1933. The court found that plaintiffs failed to plead that the rating agencies disbelieved their ratings, but granted plaintiffs leave to amend to allege Bear Stearns was aware of the inaccuracy of the credit ratings. The court, however, declined to dismiss claims that Bear Stearns made misrepresentations concerning the quality of the underlying loans in its offering documents. It also rejected Bear Stearns' argument that plaintiffs lacked standing to sue on tranches they did not purchase. Decision.
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Ambac Sues JP Morgan Over Insurance of Bear Stearns RMBS
On March 30, 2012, Ambac Assurance Corp. brought claims against J.P. Morgan Chase, EMC Mortgage, and Bear Stearns in the Supreme Court of the State of New York, alleging fraudulent marketing of RMBS by Bear Stearns. Ambac alleges that Bear Stearns, which was acquired by J.P. Morgan, misrepresented the quality of the underlying mortgage loans when obtaining insurance from Ambac on the RMBS. Ambac, which alleges losses of $200 million, brings claims for fraudulent inducement, breach of contract, and successor liability. Complaint.
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Federal Court Dismisses Claims Against Bank of New York Mellon
On April 3, 2012, Judge William H. Pauley of the U.S. District Court for the Southern District of New York dismissed with prejudice nearly all claims against Bank of New York Mellon, as trustee, by four plaintiff pension funds in a putative class action relating to 530 Countrywide RMBS trusts worth $424 billion. Plaintiffs allege that Bank of New York Mellon violated the Trust Indenture Act and breached its contractual and fiduciary duties by failing to remedy the allegedly inadequate servicing of the mortgages underlying the trusts. The court found the plaintiffs lacked standing to bring claims under the Trustee Indenture Act relating to trusts in which they did not actually invest. As a result of the decision, only 26 trusts worth $30 billion remain in the litigation. Decision.
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