Bloomberg News

EMC Mortgage Sued by Securitization Trust in New York

May 25, 2012

JPMorgan Chase & Co.’s (JPM:US) EMC Mortgage unit was sued for breach of contract by a trust that financed the purchase of residential mortgage loans.

EMC Mortgage sold a pool of residential mortgage loans to the trust, SACO I Trust 2006-5, which was formed under an April 2006 pooling and servicing agreement, according to a filing today in New York State Supreme Court in Manhattan.

The trust financed the purchase of residential mortgages by issuing certificates that were to be repaid with interest from revenue generated from the loans, according to the court document.

“The plaintiff has been informed by certain investors who are owners of certificates of numerous breaches of representations and warranties made by EMC that relate to the quality of the loans,” lawyers for the trust said in the court filing. “EMC has filed to cure those breaches or repurchase the loans, as it is obligated to do pursuant to terms of” the agreement.

The trust owned 13,156 loans as of April 2006, issued about $667.3 million in certificates, and has suffered losses of about $356 million to date, according to the filing. The trust is seeking damages of at least $293 million plus interest.

EMC Mortgage was a unit of Bear Stearns Cos. until the investment bank was bought by JPMorgan in 2008.

Pools of home loans securitized into bonds were a central part of the housing bubble that helped send the U.S. into the biggest recession since the 1930s. The housing market collapsed, and the crisis swept up lenders and investment banks as the market for the securities evaporated.

Jennifer Zuccarelli, a spokeswoman for New York-based JPMorgan, didn’t immediately return an e-mail seeking comment on the lawsuit.

The case is SACO I Trust 2006-5 v. EMC Mortgage LLC, 651820/2012, New York State Supreme Court (Manhattan).

To contact the reporter on this story: Chris Dolmetsch in New York at cdolmetsch@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.


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