Tuesday brought a pair of interesting developments in class actions over mortgage-backed securities. In federal court in Manhattan, Goldman Sachs agreed to pay $26.6 million to settle claims in a hotly contested case involving a $698 million MBS offering backed by New Century mortgages. Meanwhile, across the Hudson River in New Jersey, U.S. District Judge Claire Cecchi dismissed with prejudice an MBS class action against UBS, holding that the class hadn't brought claims before the statute of limitations ran out.

The Goldman settlement, in a case led by Bernstein Litowitz Berger & Grossmann, is nothing to sneeze at (especially since Bernstein Litowitz is asking U.S. District Judge Harold Baer to approve $5.3 million in legal fees and expenses). The lone Goldman offering that remained in the case after rulings on standing knocked out claims on two other MBS trusts had an initial principal amount of $698 million, but the 2007 trust had paid almost $400 million in principal and interest so damages were limited. Under the crude analysis we've seen in MBS settlements, the Goldman deal represents 32 cents per $1,000 of original face value, which wo ul d make it the best MBS class deal on the books. In two other big MBS cases, class members received 12.8 cents per $1,000 of original face value in the $32.5 million class settlement against Deutsche Bank and 19 cents in Bernstein Litowitz's $315 million settlement with Merrill Lynch.

But it's becoming increasingly clear, thanks to rulings like the UBS dismissal, that there's no pot of gold at the end of the rainbow for the plaintiffs' firms that pioneered class actions asserting federal securities claims against issuers of mortgage-backed securities. The universe of cases is now defined, since the statute of limitations under the Securities Act of 1933 will preclude any class action that isn't already under way. According to Cohen Milstein Sellers & Toll -- which, along with Bernstein Litowitz and Robbins Geller Rudman & Dowd, has led MBS class litigation -- about 20 MBS class actions have been filed over the last five years. Five have settled, against Goldman, Deutsche Bank, Merrill, Wells Fargo ($125 million) and Lehman ($40 million). Some have been dismissed outright, like the UBS case; many others, including cases against JPMorgan, Bear Stearns, Countrywide, Royal Bank of Scotland and Residential Capital, have survived dismissal motions and are in discovery.

No MBS class action, though, has turned out to be as sweeping as plaintiffs' lawyers initially hoped when they began filing the cases in 2007. Early suits tried to rope in the credit rating agencies, but trial and appeals courts bought the agencies' First Amendment argument that their ratings of publicly traded mortgage-backed notes were protected opinions. Judges also refused to permit classes to assert claims on a broad array of offerings. Most courts said lead plaintiffs only had standing to sue for damages when they invested directly in a trust, and some said lead plaintiffs could only bring claims based on the individual tranches in which they invested. Those rulings sheared billions of dollars of issuer exposure out of the class action litigation.

"They're still good cases, important cases, but, yes, the numbers are lower than we hoped they would be," said Steven Toll of Cohen Milstein, who's getting ready for what he hopes will be a trial of class MBS claims against JPMorgan this fall. "I don't know if disappointment is the right word, but the cases certainly got scaled back."

There's a line of thinking, however, that the banks' success in harnessing MBS class actions may turn out to be a Pyrrhic victory. One of the effects of limiting class actions so severely has been to drive individual MBS investors into filing their own cases. Individual investors don't have to rely on federal securities laws with restrictive time bars. They can bring claims for state and common-law fraud and negligence. And depending on the state, they have up to six years to file such suits. Moreover, lots of investors have demanded and received tolling agreements from potential defendants, so if out-of-court settlement discussions fail they can still sue.

We don't yet know the magnitude of liability for the banks in these individual investor cases. Some are being litigated in public, with AIG's $10 billion in fraud claims against Bank of America, Merrill and Countrywide perhaps the most notorious MBS cases. They're not the only ones, though: Among other plaintiffs, Allstate, Dexia and a host of German banks with enormous MBS portfolios have brought dozens of other suits, mostly in New York state and federal courts, claiming billions of dollars of damages for alleged fraud by MBS issuers. None of the big public cases has yet settled, but I've heard that several defendants have been talking privately with investors or even quietly going to arbitration of MBS claims.

The obstacle to widespread settlement of investors' securities claims is the Federal Housing Finance Agency's litigation against just about every bank in the MBS game. The banks don't want to reach a public settlement in an individual investor's case that can serve as a benchmark in the FHFA cases. So I'm told that at this point, they're making extremely low offers to resolve claims. I've reported that U.S. District Judge Denise Cote of Manhattan seems to be pushing for a resolution in the FHFA litigation. When and if the dominoes begin to fall in that case, we can expect to see a clatter of settlements to follow.

(Reporting by Alison Frankel)

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