February 27, 2013
Rakoff Rules for Monoline Insurer Against Securitizer
Judge Rakoff ruled for Assured Guaranty against Flagstar and awarded Assured more than $90 million. The 103 page order is a pretty compelling read as it is a careful review of a battle of the experts and has lots of details about the loans in two Flagstar securitizations. Some interesting bits:
- the third-party due diligence providers, the Clayton Group and the Bohan Group, “were only expected to flag issues if something in the loan files appeared ‘ridiculous.’” (18)
- the court found that many of the loans had “blatant” defects. (75)
Ultimately, the court found “that the loans underlying the Trusts here at issue pervasively breached Flagstar’s contractual representations and warranties.” (91) The court’s findings may have unexpected relevance to other burning issues coming out of the financial crisis, such as whether these securitizations complied with the REMIC rules.
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