New York Attorney General Eric Schneiderman said he will announce new enforcement actions against major financial institutions as part of his effort to “protect New York homeowners” after calling the first such lawsuit last year a “template” for future litigation.
In October, Schneiderman sued JPMorgan Chase & Co., alleging that Bear Stearns, which JPMorgan took over in 2008, deceived mortgage-bond investors about defective loans backing securities they bought, leading to “monumental losses.” He said the case would be a model for future actions against banks that issued mortgage bonds during the real estate boom. He sued Credit Suisse Group AG on similar grounds the next month.
“We do expect this to be a matter of very significant liability, and there are others to come that will also reflect the same quantum of damages,” Schneiderman said last year. “We’re looking at tens of billions of dollars, not just by one institution, but by quite a few.”
New York was one of 49 states that reached a $25 billion settlement with five mortgage servicers, including Bank of America Corp. (BAC:US), Wells Fargo & Co., and JPMorgan, to end a probe of abusive foreclosure practices. Schneiderman’s office had agreements with 12 financial institutions that preserved claims that might be filed against them, a person familiar with the matter said last year. The so-called tolling agreements prevented the statute of limitations, which bars litigation after a specific number of years have passed, from expiring.
The announcement later today also comes after Schneiderman said he won’t seek to block Bank of America (BAC:US)’s effort to complete a settlement with mortgage-bond investors. Delaware Attorney General Beau Biden joined him in saying he wouldn’t object to the accord because investors had benefited from their earlier intervention in the case. New York had previously said the deal represented “a tiny percentage” of investor losses.
Damien LaVera, a spokesman for Schneiderman, declined to comment about the enforcement actions to be announced, whether they are connected to the JPMorgan or Credit Suisse litigation, or last week’s statement about the BofA settlement.
Schneiderman helps lead a federal-state group formed to investigate misconduct in the bundling of mortgage loans into securities. The group includes the Justice Department and the Securities and Exchange Commission.
“We’re a long way from wrapping this up,” he said last year.
JPMorgan and Credit Suisse said New York was relying on recycled claims from private lawsuits. Both banks asked a New York state court to dismiss the complaints.
The proposed BofA mortgage bond accord was filed two years ago in New York state court in a bid for approval with the backing of an investor group that included Pacific Investment Management Co. The deal, which would resolve claims from investors in Countrywide Financial mortgage bonds, is set to be considered by a judge at a hearing starting May 30.
Charlotte, North Carolina-based Bank of America acquired Countrywide in 2008.
American International Group Inc. (AIG:US) argued in a court filing May 3 that New York State Supreme Court Justice Barbara Kapnick in Manhattan should reject the accord. The insurer said the settlement is “unreasonably and unjustifiably small” and “severely understates” Bank of America’s liability.
“The resulting settlement is a pennies-on-the-dollar bargain for BofA that woefully undercompensates” investors, AIG and other investors said in the filing.
Lawrence Grayson, a spokesman for Bank of America, declined to comment on the filings by AIG and the attorneys general.
The Federal Housing Finance Agency, the regulator for mortgage finance companies Fannie Mae and Freddie Mac (FMCC:US), said last week it was withdrawing a “conditional objection” filed in 2011 in which the agency said it needed more information to evaluate the agreement.
Schneiderman and Biden said in their joint filing that when the settlement was submitted in state court in June 2011, it was an agreement of “unprecedented size and complexity,” while Bank of New York Mellon Corp. (BK:US), the trustee seeking approval for the agreement, was offering “minimal disclosure” to investors. After almost two years of litigation, “fulsome adversarial examination” of the deal has occurred ahead of the approval hearing, the states said.
“The attorneys general do not express a view as to the unsettled substantive issues of the settlement’s adequacy,” they said.
New York said in a court filing last year that there were “serious questions about the fairness and adequacy” of the settlement and that the facts “suggest that the proposed settlement is unfair.”
Biden’s office said in 2011 that it had “significant concerns that the proposed settlement does not adequately remedy the harm suffered by the beneficiaries.”
“We are satisfied that a sufficiently transparent process has developed in which all parties are fully able to present their sides to the court, and we believe the court will be able to conduct a thorough evaluation and resolve these issues fairly and impartially,” Jason Miller, a spokesman for Biden, said in a statement.
Kevin Heine, a BNY Mellon spokesman, said the bank is pleased New York, Delaware and the FHFA aren’t opposing approval.
“We continue to believe that we have carried out our duties as trustee under the governing documents and acted in the best interests of the certificate holders,” he said in a statement.
The case is In the matter of the application of the Bank of New York Mellon, 651786-2011, New York State Supreme Court (Manhattan).
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