Settlement for Financial Guarantee Company in RMBS Suit
In March 2014, Patterson Belknap secured a settlement on behalf of its client, a leading financial guarantee insurance holding company, in a lawsuit against a mortgage corporation subsidiary of a major multinational bank over misrepresentation of the risks of the bank’s residential mortgage-backed securities (RMBS) and the quality of the underlying loans. The $400 million settlement covered several cases that the firm’s client brought against the bank to recover losses on securities created and sold by a defunct global investment bank and securities trading and brokerage firm, as well as by the bank’s mortgage affiliate.
Particularly, in connection with two litigations relating to an RMBS transaction, the firm secured significant victories on several core legal issues, leading to the landmark settlement of both litigations.
First, the firm represented the financial guarantee company in a breach-of-contract action against the mortgage subsidiary, alleging breaches of numerous contractual warranties relating to the characteristics of the underlying loan pool, as well as due diligence and securitization practices, thereby causing the firm’s client to issue a financial guarantee policy on a collateral pool that was far riskier than warranted.
Second, the firm also represented its client in a common-law fraud action brought against the defunct global investment bank, alleging that it knowingly encouraged the securitization of a mortgage-loan pool infiltrated by fraud and poor underwriting, and made numerous material misrepresentations regarding the loan pool in order to induce the firm’s client to issue its financial guarantee policy.