I've had some fun at the expense of the trustees who oversee
mortgage-backed securities offerings, noting that MBS trustee
suits to enforce investors' contractual rights are about as rare
as an ivory-billed woodpecker sighting. But if last week is a
harbinger, I may have to find another "Animal Kingdom" simile.
Perhaps the Labradoodle? Once a novelty, now they're seen
hanging out the passenger-side windows of countless suburban
minivans.
Three new complaints were filed last week by or on behalf of
MBS trustees. On May 30, the Federal Housing Finance Agency sued
Greenpoint Mortgage Funding in New York State Supreme Court on
behalf of the trustee in a Lehman MBS offering. The FHFA's
lawyers at Kasowitz Benson Torres & Friedman assert that
Greenpoint is obliged to repurchase underlying mortgage loans
that breach the mortgage company's representations and
warranties. Greenpoint, the complaint asserts, hasn't lived up
to its put-back obligations.
On the same day that Kasowitz filed the FHFA case, Quinn
Emanuel Urquhart & Sullivan filed a suit against EMC Mortgage and its parent, JPMorgan Chase, in New York State Supreme Court,
representing an MBS trust for which U.S. Bank is trustee. It
claims EMC has been notified of reps and warranties breaches in
1,335 underlying mortgage loans but hasn't repurchased a single
one. The complaint asserts more than $104 million in put-back
damages.
Then on May 31, Homeward Residential (the new name for
American Home Mortgage) sued Sand Canyon in New York State
Supreme Court. These two have a considerable history. In 2007
American Home bought the mortgage servicing business of Sand
Canyon, the remnants of a one-time California mortgage lender
called Option One, which was an H&R Block subsidiary. (You
remember Option One: It's the only MBS issuer that has faced an
SEC enforcement action.) In February, Sand Canyon sued American Home to block it from turning over mortgage loan files to MBS
trustees and investors. Last week, Homeward Residential sued for
reps and warranties breaches on behalf of the trustee in a $1.5
billion Option One offering from 2006. The trust has already
lost a whopping $325 million, according to the complaint, in
which the mortgage servicer's lawyers at Hunton & Williams seek
to force Sand Canyon to repurchase deficient underlying loans.
It's no accident that all of the new suits involve MBS
certificates sold in 2006: New York has a 6-year statute of
limitations. That's a better reason for sudden popularity than
anything the Labradoodle can offer.
(Reporting by Alison Frankel)
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