Recently in Asset Backed Securities Category

March 14, 2014

Jefferies Agrees To Pay $25 million For Mortgage Backed SecuritiesViolations

The Securities and Exchange Commission has charged global investment bank and brokerage firm Jefferies LLC with failing to supervise its employees who sold mortgage-backed securities desk and were in turn lying to customers about pricing.

An SEC investigation found that Jefferies representatives including Jesse Litvak, who the SEC charged with securities fraud last year, lied to customers about the prices that the firm paid for certain mortgage-backed securities. Lying about those prices mislead customers about the true amount of profits being earned by the firm in its trading. Jefferies' policy required supervisors to review the electronic communications of traders and salespeople in order to flag any untrue or misleading information provided customers. However, the policy was not implemented in a way to detect misrepresentations about price.

Jefferies agreed to pay $25 million to settle the SEC's charges as well as a parallel action announced today by the U.S. Attorney's Office for the District of Connecticut.

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March 12, 2014

RBS reaches $275 million mortgage-backed securities settlement

On Feb. 19, RBS officials announced that the company had reached a $275 million settlement with the U.S. government to resolve allegations of misleading investors in mortgage-backed securities. The settlement is the third-largest settlement in the U.S. class action against banks packaged and sold mortgage securities.


This case was originally filed in 2008 by New Jersey Carpenters Health Fund and the Boilermaker Blacksmith Pension Trust. The suit accused RBS and others of violating U.S. securities law by packaging and selling an estimated $25.39 billion of securities in 14 separate offerings to linked to the Harborview Mortgage Loan Trusts. These mortgage loans did not meet underwriting guidelines, a fact the suit says RBS concealed. The loans later sank to junk status.

This settlement is just a drop in the bucket compared to the estimated losses suffered by investors. As more and more of these settlements take place it is important that investors take actions to protect their legal rights in these sorts of cases.

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March 3, 2014

Countrywide Alleges Fraud and Misrepresentations Claims Against It Are Time Barred

Countrywide Financial group is urging a California court to dismiss racketeering claims brought against it by Prudential Life Insurance Company. Prudential's suit alleges that Countrywide used omissions and misrepresentations to sell low-quality mortgage backed securities to unknowing consumers. Countrywide is alleging that the claim is time barred based on an inquiry notice standard that would prevent the suit alleging that more than $500 million of these mortgage backed securities were wrongfully sold by Countrywide.
The inquiry notice standard starts running the statute of limitations at the point when plaintiffs should have been aware of its claimed injury and the source of that injury -- in this case, when "reasonable investor" would have been aware of problems with underwriting at Countrywide -- according to Countrywide's memorandum in support of its motion to dismiss the claims. Opposing council claimed that this notice standard had not been met by the date in question.

October 24, 2013

Collateral Manager Of CDO Charged With Fraud

Investment advisory firm, Harding Advisory, LLC, and its owner were charged recently by the SEC for misleading investors and breaching their fiduciary duties. According to a recent press release, the SEC alleged Harding "compromised their independent judgment as collateral manager to a CDO named Octans I CDO Ltd." The firm and owner allegedly did so for requested trades of a third party hedge firm, Magnetar Capital LLC. The SEC asserted in their press release that these trades "were not necessarily aligned with the debt investors". One example provided by the SEC of going against the interests of the debt investors is Harding giving the hedge firm rights during the process of choosing and obtaining a portfolio of subprime mortgage-backed assets. These assets were collateral for debt instruments issued to investors in the CDO and the investors were not told of the rights given to the hedge firm, according to the press release. Another allegation by the SEC is that, in favor of Magnetar's preferences, Harding's own credit analyses were disregarded. Also asserted is that Magnetar's role in selecting assets of the CDO was not disclosed in any of the marketing material produced to potential investors.

The SEC charged Harding with violating Section 17(a) of the Securities Act of 1933 and Section 206 of the Investment Advisers Act of 1940. The owner of Harding, Wing F. Chau was charged under those sections as well as being charged with aiding and abetting and causing Harding's violations.

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October 8, 2013

FDIC Against Proposed Countrywide Settlement

The FDIC recently advised a U.S. District Court Judge to reject the proposed $500 million class-action settlement between Bank of America Corp.'s Countrywide unit and investors due to the relatively small percentage of the settlement that will go the investors, Bloomberg.com reported.

The FDIC stated in their filing that only $41 million dollars would go to 91% of the investor plaintiffs from the settlement, with $85 million dollars going to the attorneys for the lead plaintiffs.

The Bloomberg.com article further states the FDIC found the entire $500 million dollar settlement amount to be lacking. The face value of the securities comprising the suit is $450.7 billion dollars.

The article states that other similar mortgage-backed securities actions have recovered an average of 1.1 percent of the face value of the securities while this settlement would only provide 0.11 percent of face value.

The settlement provides, after attorneys' fees, $267 million for claims by investors in the initial lawsuits, leaving $111 million for investors whose claims were filed too late, according to the article. A hearing on final approval for the settlement is scheduled for Oct. 28.

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January 14, 2013

Bank of America to Pay $10.3 Billion Over Questionable Mortgages

A recent CNN Money article disclosed a $10.3 billion settlement between Fannie Mae and Bank of America over questionable home loans sold during the housing bubble and subsequent burst. The article stated the large settlement would be comprised of a direct payment of $3.55 billion in cash as well as $6.75 billion paid to repurchase around 30,000 "questionable" mortgages. These mortgages were combined into mortgage backed securities, which were purchased and guaranteed by Fannie Mae and turned out to be very risky and unstable investments. It was these mortgage backed securities that helped bring down the government backed mortgagor, causing them massive losses and needing a $116 billion bailout to continue to operate.

According to the CNN Money article, the loans in question were originally made by Countrywide Financial between 2000 and 2008 and the original value of the loans covered in this settlement was $1.4 trillion. Bank of America purchased Countrywide in 2008 for $4 billion. This is not the first settlement that BofA has reached regarding Countrywide's mortgage or loan practices and their packaging of mortgage backed securities. BofA repurchased $2.87 billion in bad loans purchased by Fannie Mae and Freddie Mac. In 2011, BofA agred to pay a $335 million fine over Countrywide's alleged discriminatory lending practices.

The settlement between Fannie Mae and BofA was disclosed the same day that the Federal Reserve and Office of the Comptroller of the Currency reached a different agreement with BofA and nine other banks for a total of $8.5 billion regarding foreclosure abuse. The other banks in the foreclosure abuse settlement are Aurora, Citigroup, JPMorgan Chase, MetLife, PNC, SunTrust, US Bank, Wells Fargo and Sovereign Bank.

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November 19, 2012

SEC CHARGES JP MORGAN & CREDIT SUISSE FOR MISLEADING INVESTORS

Once again JP Morgan has found itself in hot water with the SEC, this time alongside with Credit Suisse. The announcement came in a recent SEC News Digest that JP Morgan and Credit Suisse agreed to settlements to pay around $400 million dollars to investors harmed by their misleading information regarding residential mortgage backed securities.

The article alleged that Credit Suisse failed to accurately disclose that it retained some cash for itself when it settled claims against mortgage loan originators. Credit Suisse also was accused of making misleading statements in its SEC filings regarding its practice of repurchasing mortgage loans after a borrower missed the first payment due. Using these misleading and fraudulent techniques, Credit Suisse allegedly made $55.7 million in profits while investors lost more than $10 million. Credit Suisse agreed to pay $120 million as settlement to the SEC for the harmed investors.

JP Morgan agreed to pay $296.9 million to settle the newest set of charges against them, according to the SEC News Digest. All of the monies paid by JP Morgan, and Credit Suisse, will be distributed to harmed investors by the SEC. The charges against JP Morgan dealt with misstatements JP Morgan allegedly made regarding the delinquency status of RMBS collateral mortgage based loans in which JP Morgan was the underwriter. JP Morgan is charged with Bear Stearns' failure to disclose it keeping cash settlements paid by mortgage loan originators. All in all, JP Morgan allegedly gained around $2.7 million while costing investors $37 million. The SEC also alleged that JP Morgan made materially false and misleading statements in the prospectus for the $1.8 billion RMBS offering. Those misleading and false statements concerned the loans that provided the collateral for the RMBS transaction and many investors relied on these misleading statements to their detriment.

The SEC worked this case along with the federal-state Residential Mortgage backed Securities Working Group. Both groups hold that many mortgage products, such as the RMBS products at the heart of this matter, were "ground zero" in the financial crisis. The RMBS Working Group and the US Attorneys associated with them have a joint goal- investigating and confronting abuses in the RMBS securities market that contributed to the financial crisis. The SEC and the RMBS Working Group intend to hold those who misled investors accountable for their actions, according to Kenneth Lench, Chief of the SEC Enforcement Division's Structured and New Products Unit.

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October 22, 2012

Basel May Provide Tougher Rules for Asset Backed Securities

The Basel Committee on Banking Supervision is posed to review how securitization is regulated globally in response to concerns that current regulations are not reducing excessive risk tasking, according to a recent Bloomberg.com article.

The Basel Committee is associated with the Bank for International Settlements and is a forum for regular cooperation on banking supervisory matters. The Committee consists of members from 27 different countries and is best known for its international standards on capital adequacy- the core principle for effective banking operations.

The article discussed a few of the main focuses of the Basel Committee. One is a review of the liquidity coverage ratio (LCR), which was last tweaked two years ago. The ratio relates to the amount of easy to sell assets a bank has on hand and the ratio relates to how much the bank should have in order to weather a 30 day credit squeeze. Responding to calls from the Euro Central Bank and the Bank of France, the Basel Committee will explore a possible expansion of the list of assets banks can use to meet the LCR. The LCR ratio currently has many asset backed securities, which are financial products whose value derives from assets such as loans or credit card debts rather than mortgages.

Another focus for the Basel Committee during their review is to come to a decision whether to allow banks to use more contingent-convertible bonds (CoCos) to meet their capital requirements. CoCos are a fixed income security that automatically converts into ordinary shares is a bank's capital falls through a predetermined floor. The CoCos have two prices, unlike a traditional convertible bond that just has a strike price. After the strike price, which is the cost of the stock when the bond converts into stock, there is another price. This price is even higher than the strike price and it is what the company's stock price must reach before an investor has the right to make the conversion.

The Basel Committee has set their 2013 priorities, which includes the above issues as well as reviewing a separate liquidity rule for lenders, a net stable funding ratio and studying possible changes to capital rules banks face on assets they intend to trade.

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October 3, 2012

JP MORGAN SUED BY NY ATTORNEY GENERAL

In the first suit to be filed under RMBS Working Group, JP Morgan has been served civilly over the mortgage backed securities sold by Bear Stearns, according to an article in the New York Daily News. The RMBS Working Group, created by the Obama Administration, investigates and prosecutes misconduct that contributed to the financial crisis.

In 2006 and 2007, investors lost around 22.5 billion dollars in the subprime funds issued by Bear Stearns. The Attorney General alleged in his suit that Bear Stearns held these RMBS funds out as being "carefully evaluated" and that the investors were given a false sense of security. The article goes on to state that the AG alleged the executives of Bear Stearns knew of the shortcomings of the funds and yet did nothing to protect their investors. JP Morgan has responded that the actions relied upon for the civil suit filed occurred before JP Morgan acquired Bear Stearns in 2008.

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July 5, 2012

BEAR STEARNS $275 MILLION SETTLEMENT REACHED

Bear Stearns has been ordered to pay $275 Million dollars to investors that lost money with Bear Stearns.  According to a recent CNBC.com article, Bear Stearns misled their investors about the true and deteriorating state of the company before JP Morgan purchased Bear Stearns.

Bear Stearns was one of the first prominent companies to fail after the housing bubble burst. The settlement discussed in the article comes after a failed criminal trial against two higher up Bear Stearns executives.

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February 11, 2012

Behringer Harvard REITs Estimated Value Down 46% From Last Year

Behringer Harvard Opportunity REIT I dropped in value at the end of 2011, according to this article from investmentnews.com.  The value per unit of the non-traded REIT went down to an estimated $4.12 per unit value, down from $7.66 a unit value from the previous year.

The reduction in value for the Opportunity REIT I was not the only hit Behringer Harvard saw in this most recent evaluation. The Behringer Harvard REIT I dropped in value $5.36 per unit, going from a value of $10 in 2010 to a value of $4.64 in 2011.  Also, the Behringer Harvard Short-Term Opportunity Fund I LP dropped from a value of $6.48 all the way down to $0.40 per share

According to this article, many large broker-dealer firms have stopped selling the firm's Multifamily REIT. There are also many firms that have completely stopped doing business all together with Behringer Harvard.

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January 12, 2008

UBS Cannot Quantify Subprime Exposure

Miles Costello of The Times Online reports that the cloud of uncertainty hanging over the credit markets was thrown into sharp relief yesterday as UBS told investors that it still could not be sure about the full financial impact of the credit crunch.

UBS is preparing for writedowns of $13.4 billion (£6.8 billion) against its exposure to the downturn in American sub-prime mortgages.

To read the complete article click here.

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January 6, 2008

Subprime Lawsuits Increase

Alistair Barr of Marketwatch reports that State Street Corp's decision to set aside $618 million to cover subprime litigation costs has increased concern that insurers offering policies covering such expenses could be hit with big claims from the credit crisis.

State Street said the reserve was needed to pay for lawsuits and possible settlements stemming from complaints about the fixed-income strategies managed by its State Street Global Advisors investment arm. The funds were hit by exposure to falling subprime mortgage markets and a lack of liquidity, the company explained. See full story

State Street has insurance covering legal costs and expects to get some of the money back from claiming on the policy, Ronald Logue, chief executive of State Street, told analysts and investors during a conference call on Thursday. The value of that coverage wasn't included in the reserve for accounting reasons, he added.

To read the full article click here.

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January 5, 2008

CDOs Face Ratings Downgrade

Paul Davies of FT.com reports that almost $6.5bn worth of complex debt securities face fresh downgrades by Standard & Poor's because of their exposure to US mortgage-backed bonds, the credit rating agency said Friday.The news will add to the pain for investors in such instruments and follows downgrades issued to $3.7bn worth of similar instruments on Thursday from S&P. In all, the agency has either downgraded or placed on review more than $77bn worth of collateralised debt obligations (CDOs) that have direct exposure to the crisis in the US mortgage markets.

To read full article click here.

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January 5, 2008

"Subprime" Is Word On The Street

CNNMoney.com reports that even the American Dialect Society knows how risky home mortgages are these days.The group of wordsmiths chose "subprime" as 2007's Word of the Year at its annual convention Friday.

"'Subprime' has been around with bankers for awhile, but now everyone is talking about 'subprime,"' said Wayne Glowka, a spokesman for the group and a dean at Reinhardt College in Waleska, Ga. "It's affecting all kinds of people in all kinds of places."

About 80 members of the organization spent two days debating the merits of runners-up "Facebook," "green," "Googleganger" and "waterboarding" before voting for an adjective that means "a risky or less than ideal loan, mortgage or investment."

To read the full article click here.

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