Brit Firm Sues Usual Suspects

[don]

UK Investment Firm Sues 15 US Banks After Losing $1.2bn on Subprime RMBS


by DIANA GOLOBAY



Tuesday, July 13th, 2010, 9:10 am

UK-based Cambridge Place Investment Management filed a complaint in a Massachusetts court alleging 15 US banks provided false or misleading information about subprime mortgage investments.

The banks allegedly offered or sold roughly $2.4bn of residential mortgage-backed securities (RMBS) by providing misrepresenting information about the underlying subprime mortgages.

Among the defendants in the case are Morgan Stanley, Credit Suisse Securities, RBS Securities, Deutsche Bank Securities, UBS Securities, Goldman Sachs, JP Morgan Securities, Banc of America Securities, Barclays Capital and Bearn Stearns.

The complaint (download here, courtesy of The New York Times) alleges that untrue statements and omissions of fact on the part of these banks led to losses in excess of $1.2bn at Cambridge.

Cambridge alleges the banks provided false information regarding the mortgage originators' underwriting standards that were used to determine the borrowers' ability to repay. The complaint also claims the banks provided inaccurate information about appraisal standards used in valuation of the homes securing the loans.

Loan-to-value and debt-to-income ratios, as well as occupancy status of the mortgages were also allegedly misrepresented. Additionally, Cambridge claims the banks misrepresented the level of due diligence on the loans and the various forms of credit enhancement applicable to certain RMBS tranches.

"The next thing that has to happen is each of the 15 banks will have to get their act together and respond," Cambridge Place spokesperson Jonathan Hawker tells HousingWire. "Considering there are 15 defendants, I don't imagine that will happen quickly."

The complaint was filed under "blue sky" legislation, meaning the burden falls on Cambridge to prove the information provided on the subprime investments was incorrect, according to Hawker. He noted 63 confidential witnesses within the banks contributed statements regarding the misrepresentation of information.

http://www.housingwire.com/2010/07/1...HousingWire%29

[D-Mack]

Re: Brit Firm Sues Usual Suspects

The list of defendants is like two pages long (even Bear Sterns), but why are there no rating agencies?

[don]

Re: Brit Firm Sues Usual Suspects

The list of defendants is like two pages long (even Bear Sterns), but why are there no rating agencies?

I would assume the list includes now-hostile associates but the day-to-day need to work with the rating agencies remains.

[Slimprofits]

Re: Brit Firm Sues Usual Suspects

http://graphics8.nytimes.com/2010/07.../complaint.pdf

70. These statements of material facts were untrue because: (1) the mortgage originators violated their stated underwriting guidelines and did not consistently evaluate the borrowers’ ability to repay the loans; (2) inflated appraisals caused the listed LTV ratios and levels of credit enhancement to be untrue; and (3) the actual numbers of riskier “second home” and “investment property” mortgagees were higher than the stated numbers. In addition, metrics such as debt-to-income ratios were untrue as a result of the mortgage originators’ acceptance of untrue information from mortgage applicants. For example, the mortgage originators allowed applicants for “stated income” loans to provide untrue income information and did not verify the applicants’ purported income. Stated income loans were therefore widely known among personnel of the mortgage originators as “liar loans.”

71. Often at meetings, including meetings in Massachusetts, the Wall Street Bank Defendants also showed Plaintiff “pitch books” and other materials regarding the credit quality of the Securities and the Wall Street Banks’ due diligence of the mortgage originators’ underwriting practices. Plaintiff, however, was not allowed to keep the pitch books. These pitch books and other materials contained untrue statements similar to those described above. In addition to the untrue statements and omissions in the documents provided or shown to Plaintiff, the Wall Street Bank Defendants made additional untrue oral statements to Plaintiff during face-to-face meetings and by telephone between 2005 and 2007. The representatives of the Wall Street Bank Defendants who offered or sold the Securities to Plaintiff received compensation based, directly or indirectly, on the volume of Securities they sold to investors, including the Clients on whose behalf Plaintiff purchased Securities.