Bombshell Breaking News! BofA’s Countrywide Must Face FHFA’s Securities Fraud Claims!

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BofA’s Countrywide Must Face FHFA’s Securities Fraud Claims

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Piggybankblog posted on 03/18/13

Cross linked with bloomberg

Bank of America Corp.’s Countrywide Financial unit must face securities fraud claims by the Federal Housing Finance Agency, which sued for damages as the conservator for Fannie Mae and Freddie Mac.

U.S. District Judge Mariana Pfaelzer in Los Angeles, in a March 15 decision, denied Countrywide’s request to dismiss the FHFA’s claims. Countrywide claimed that the agency failed to provide sufficient factual information that the offering documents for residential mortgage-backed securities contained misrepresentations.

“The amended complaint alleges that Countrywide expanded its underwriting guidelines through the ‘matching strategy,’ but did not disclose that information to investors,” Pfaelzer said.“The mere expansion of underwriting guidelines does not support a claim under the securities laws, but failing to disclose that expansion to investors constitutes a viable misstatement.”

Freddie Mac (FMCC) and Fannie Mae bought $26.6 billion worth of residential mortgage-backed securities that Countrywide sold from Aug. 30, 2005, to Jan. 23, 2008, according to the complaint, originally filed in state court in New York in 2011 and moved to federal court in Los Angeles. Pfaelzer last year rejected Countrywide’s contention that the claims were filed too late.

Pfaelzer said the FHFA has plausibly alleged that Countrywide provided false information in the offering materials regarding the loan-to-value ratios of the underlying mortgages. The judge also said the agency adequately alleged that Countrywide deviated from its listed underwriting guidelines, and that the mortgage lender was to blame for the false credit ratings of the securities.

Offering Documents

The judge said there was no plausible allegation that Countrywide didn’t accurately represent the owner-occupancy of the mortgaged homes provided by borrowers in the offering documents for the mortgage-based securities.

The FHFA brought its lawsuit against Countrywide in September of 2011 to make sure that it would fall within the three years the agency had from the time of the start of its conservatorship in September of 2008 to file tort claims on behalf of Freddie Mac and Fannie Mae (FNMA), Christine Chung, a lawyer for the agency, said at a hearing last year.

Fannie Mae and Freddie Mac, the government-sponsored enterprises created to support the housing market by buying residential mortgages in the secondary market, have operated under U.S. conservatorship since 2008, when they were seized amid subprime mortgage losses that pushed them toward insolvency.

The judge in her March 15 ruling granted Bank of America’s request to dismiss the claims against the bank as successor of Countrywide Financial, which it acquired in 2008.

17 Banks

The FHFA sued 17 banks including Charlotte, North Carolina-based Bank of America, JPMorgan Chase & Co., Citigroup Inc., Goldman Sachs Group Inc. and Deutsche Bank AG. Most of the suits were filed in federal court in Manhattan in September 2011 or moved to the court later. Mortgage-backed securities cases against Countrywide are being coordinated in Los Angeles.

Lawrence Grayson, a spokesman for Bank of America, declined to comment on the judge’s ruling.

The case is Federal Housing Finance Agency v. Countrywide Financial Corp., 12-cv-01059, U.S. District Court, Central District of California (Los Angeles).

To contact the reporter on this story: Edvard Pettersson in the Los Angeles federal court house at +1- epettersson@bloomberg.net

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

 

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