U.S. Justice Department unit to ramp up hiring as mortgage probes advance
By Emmanuel Olaoye
NEW YORK, March 6 (Thomson Reuters Accelus) - The U.S. Justice Department plans to step up its hiring of staff to investigate abuses in the packaging of residential mortgage backed securities and to work with regulators to uncover serious fraud, a senior department official told Thomson Reuters in the wake of criticisms that Obama administration efforts were insufficient.
Last week, the former chairman of the Financial Crisis Inquiry Commission claimed that the government was not doing enough to uncover serious fraud. In a New York Times opinion piece, Phil Angelides said the 55 attorneys, agents and analysts assigned to the administration’s new mortgage packaging Working Group were not enough to uncover serious fraud. Angelides also criticized the absence of federal regulators in the Working Group. (more…)
SEC’s “re-markable” action against Credit Suisse traders
By Thomson Reuters Accelus – Staff
NEW YORK, Feb.10 (Business Law Currents) - A new SEC complaint against former Credit Suisse (CS) employees shines a harsh light on an underappreciated aspect of the financial crisis: mark-to-market manipulation. Charging four traders and investment bankers with violating securities laws, the commission’s civil action (“the complaint”) alleges a “colossal fraud” to misstate the value of bonds held in the bank’s portfolio. U.S. Attorney Preet Bharara of the Southern District of New York also filed a criminal indictment against CS investment banker David Higgs, a managing director of the bank’s London office. Bharara likewise filed a criminal information against CS trader Salmaan Siddiqui, who held the title of vice president.
Unlike more high-profile litigation revolving around the residential mortgage-backed securities (RMBS) and collateralized debt obligations (CDOs), this particular case is noteworthy in that it attacks the accounting behind publicly filed documents, rather than allegations of material misrepresentations in the sales of securities. (more…)
How the BofA settlement deal got made
There are only 30 lawyers at Gibbs & Bruns, the Houston litigation boutique that orchestrated Tuesday’s $8.5 billion settlement between Bank of America and mortgage bond investors. But good things come in small packages. This deal, struck with the noteholders in 530 trusts that issued securities backed by Countrywide mortgage loans, would not have happened without Gibbs partner Kathy Patrick. She put together a coalition of major institutional investors that BofA’s trustee on the securitizations, Bank of New York Mellon, could not afford to ignore. Patrick sent a red-alert warning to the bank last October, by announcing publicly that Gibbs & Bruns and its bondholder clients were gearing up for litigation. That move alone sent BofA’s stock down five percent. Then Patrick worked with lawyers for BofA and BoNY to structure a novel deal that makes sense for all of them.
The settlement agreement submitted to New York state supreme court judge Barbara Krapnick Tuesday morning calls for BofA to pay Gibbs & Bruns $85 million if the settlement is approved. Patrick told OTC the firm has earned it. “We’re happy we’ll get paid for our work,” she said. “We’re very proud of this outcome.”
In a way, the roots of the BofA MBS deal are more than 10 years deep, dating back to when Gibbs & Bruns began representing a predecessor of the asset manager Black Rock in a Texas legal malpractice case that the firm eventually won at trial. Patrick’s relationship with Pimco, the gargantuan bond fund manager, goes back to 2003, when she was hired to bring suits against the banks that issued $2 billion in National Century Financial Enterprises securitizations. Pimco was one of the NCFE noteholders for whom Gibbs & Brun recovered more than $500 million.
Those two clients were founding members of the heavyweight coalition Patrick assembled for the assault on Bank of America. By October, when Gibbs & Bruns sent BoNY and BofA a notice of default, the group included eight institutional investors who held more than 25 percent of the voting rights in 115 trusts that sold securities backed by Countrywide mortgages. (25 percent is the crucial threshold for demands on a trustee under standard securitization contracts.) Both numbers kept growing as Patrick entered discussions with Jason Kravitt of Mayer Brown (for Bank of New York), Ted Mirvis of Wachtell, Lipton, Rosen & Katz (for BofA) and Brian Pastuszenski of Goodwin Procter (for Countrywide). Gibbs & Bruns now represents 22 institutional investors with a threshold 25 percent voting interest in 225 of the 530 trusts that are part of the proposed settlement.
Unlike some MBS investors’ counsel who have sued mortgage-backed securities issuers under state and federal securities laws, Patrick always said her case would be a straightforward state-court breach-of-contract action. She maintained that BofA had broken its agreement with investors in two ways: by failing to live up to representations and warranties about the mortgages underlying the offerings; and by failing to service the underlying mortgage loans properly.
Tuesday’s proposed settlement, Patrick said, addresses both of those litigation theories. The $8.5 billion payout compensates noteholders for the alleged representations and warranties breaches. And BofA’s agreement to subcontract loan servicing (which involves collecting and distributing interest and principal payments on the underlying loans, restructuring loans in danger of default, and foreclosing on defaulted properties) covers investors’ allegations about BofA’s ongoing servicing deficiencies. BofA has said the servicing subcontracts will cost $400 million, in addition to the servicing fee revenue stream it will lose.
“We respond to our clients’ needs,” Patrick said, noting that bondholders will retain their securities (some of which don’t mature for 20 years) under the proposed deal. “Our clients need a solution that would improve the performance of the collateral. For long-term holders of these certificates, fixing the collateral is a real priority.”
So what happens to those of us who live in areas where the banks fraud and shoddy foreclouses have left us 100′s of thousands of dollars underwater? We just get to keep bailing out these banks so they can keep giving themselves bounses? After reading this Id say this “settlement” is far from over, and more like the beginning of the end for BofA and hopefully the rest of the tbtf banksters.
http://www.businessweek.com/news/2011-06 -30/moynihan-s-2-cents-on-dollar-mortgag e-offer-faces-hurdle.html?utm_source=twi tterfeed&utm_medium=twitter
Mortgage bankers group urges Fannie, Freddie changes
NEW YORK, Sept 2 (Reuters) – The U.S. Mortgage Bankers Association said on Wednesday it will ask Congress to transform mortgage lenders Fannie Mae, Freddie Mac into several smaller, privately held companies that would issue mortgage securities with a government guarantee. (more…)
EXCLUSIVE: China fund plans $2 billion bet on U.S. “toxic” mortgages
By George Chen, Asia Private Equity Correspondent
HONG KONG, Aug 17 (Reuters) – China’s $200 billion sovereign wealth fund, which lost big on its ill-timed 2007 Morgan Stanley and Blackstone bets, plans to invest up to $2 billion in U.S. mortgages as it eyes a property market rebound, two people with direct knowledge of the matter said Monday. (more…)
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