New Jersey AG Files RMBS Suit

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On December 18, New Jersey’s Acting Attorney General John Hoffman announced a lawsuit against a mortgage securitizer and related firms for allegedly violating state securities law by making fraudulent misrepresentations and omissions to promote the sale of RMBS to private investors. Specifically, the suit alleges that the firms misrepresented in the offering documents that mortgages underlying certain securities offered over a 12-month period in 2006-7: (i) were in substantial compliance with the underwriting standards of the originators of the loans; (ii) were originated “in accordance with accepted practices and prudent guidelines;” and (iii) did not have a negative equity. The suit alleges that the firms’ traders warned about the high risks of certain types of loans being securitized. The state claims that after the securities were issued, delinquency rates in the underlying pools increased substantially, and resulted in significantly reduced distributions to investors and write downs in the principal of underlying loans. The New Jersey AG is at least the second state attorney general to file such a suit as part of the federal-state RMBS)Working Group. New York Attorney General Schneiderman filed similar suits under New York law last year.