- Morgan Stanley agrees to pay the DOJ $2.6 billion to end investigation about its mortgage-backed securities deals during the financial crisis.
- MetLife settles with DOJ for $123.5 million for issuing mortgages that did not meet underwriting standards.
- State Farm will refund $352.5 million to customers for overcharging them for homeowners’ insurance.
- New York City apartment owners are suing Lexington Insurance Co. for failing to pay more than a third of its $95.3 million claims from Superstorm Sandy.
- Bank of America moves to dismiss Ambac’s $600 million claim that Countrywide issued faulty residential mortgage-backed securities.
Tag Archives: settlement agreement
Monday’s Adjudication Roundup
-
A New York bankruptcy judge denied several mortgage originators’ motions to dismiss for Residential Capital LLC’s claims that they sold billions of dollars in defective loans.
-
A few weeks after settling with the SEC for $58 million for fraudulent ratings on commercial mortgage-backed securities, Standards & Poor settles with the U.S. Department of Justice for $1.38 billion for the same fraudulent ratings.
- After dismissing a suit against Royal Bank of Scotland, Deutsche Bank and others in 2011 over mortgage-backed securities and the Second Circuit Court of Appeals nixed her dismissal, U.S. District Court Judge Deborah A. Batts has permitted New Jersey Carpenters Health Fund to file a third amended complaint to revive the suit. This could end up costing the banks $7.7 billion if the suit is successful.
- Bank of America has defeated Prudential’s claims that it sold $2 billion of fraudulent residential mortgage-backed securities.
Are Billions Enough?
Jenner & Block has issued the Citi Monitorship First Report. By way of background,
The Settlement Agreement resolved potential federal and state legal claims for violations of law in connection with the packaging, marketing, sale, structuring, arrangement, and issuance of residential mortgage-backed securities (RMBS) and collateralized debt obligations (CDOs) between 2006 and 2007. As explained below, in the Settlement Agreement, Citi agreed to pay $4.5 billion to the settling governmental entities, acknowledged a statement of facts attached as Annex 1, and agreed to provide consumer relief that would be valued at $2.5 billion under the valuation principles set forth in Annex 2.2 As part of the Settlement Agreement, [Jenner partner] Thomas J. Perrelli was appointed as independent monitor (Monitor) to determine Citi’s compliance with the consumer relief and corresponding requirements of the Settlement Agreement. This is the first report assessing Citi’s progress toward completion of those obligations. (3, footnote omitted)
Because this is the first report, much of it sets the stage for what is to come. I was, however, struck by the section titled “Impact of Relief Provided:”
To evaluate fully the impact of the relief that is the subject of this report and authorized under the Settlement Agreement would require a variety of activities not contemplated by the settlement and not easily achievable (e.g., interviews with individual homeowners). Isolating the effect of this settlement, the National Mortgage Settlement, and other RMBS settlements from the broader housing market is also difficult.
One question frequently asked is whether the relief provided to borrowers and for which Citi has received credit would have been provided in any event (e.g., is this really additional?) On this question, the answer is mixed. Given ordinary accounting practices, loans for which foreclosure does not make economic sense are frequently written-off by financial institutions. In that circumstance, however, the banks may not release liens as a matter of routine, leaving borrowers with an ongoing burden and impeding potential efforts to redevelop the property. To get credit under the Settlement Agreement, Citi was required to release the lien, thus giving an additional benefit to the homeowner to allow him or her to make a fresh start and to remove any legal obstacles from the transfer of the property. (17, footnote omitted)
As I have noted before, it is hard to truly assess the restorative and retributive impacts of the ten and eleven digit settlements of litigation arising from the financial crisis. Are individuals appropriately helped? Are wrongdoers appropriately punished? Are current actors appropriately deterred? I find it bizarre that it is so hard to tell even when settlements are measured in the billions of dollars.
