A few days ago, news broke that MBIA was allowed to use statistical sampling in its ongoing Bank of America fraud lawsuit. This happened despite the Countrywide acquiror's loud protests. And now, courtesy of today's brand new lawsuit against BofA (and Agent Orange himself) filed by Allstate, in which the insurer "seeks unspecified damages, alleges fraud,
negligent misrepresentation and violation of U.S. securities
laws" we know just why Bank of America was so very against allowing sampling to be used by plaintiffs. According to the full report (pdf attached below), Allstate has determined that Bank of America misrepresented virtually everything in its prospectuses: from the percentage of owner-occupied properties reped in prospectuses (about a 10% differential), to the LTV thresholds on represented loans (both at the 90% and 100% threshold), while inbetween finding willful and malicious intent to defraud and deceive. We are confident that none of this, however, will result in a prison sentence for Mozillo, as laws in America are meant to be broken by anyone who can demonstrate an LTV more than 100,000% or have more than $100MM in annual income (including that derived from golden parachutes).
From the just released prospectus, which opens a green light for everyone who believes that the banks or its predecessor was dishonest in representing any and all deal components, and wishes to do so using statistical sampling, which is now permitted:
Allstate's sample sizes of Mortgage Loans are more than sufficient to provide statistically-significant data to demonstrate the degree of misrepresentation of the Mortgage Loan characteristics. Analyzing data for each Mortgage Loan in each Offering would have been cost-prohibitive and unnecessary. Statistical sampling is an accepted method of establishing reliable conclusions about broader data sets, and is routinely used by courts, government agencies, and private business. As the sample size increases, the reliability of its estimations of the total population increase as well. Experts in RMBS cases have found that a sample size of just 400 loans can provide statistically significant data, regardless the size of the actual loan pool, because it is unlikely that so large a sample would yield results vastly different from results fro the entire population.
So having used this sapling method, here is what Allstate found:
...statistics show that despite Countrywide's representations, a much higher percentage of borrowers did not occupy the mortgaged properties:
...Overall, 18.3% of the loans sampled had recalculated LTV ratios of more than 10% higher than was claimed in the offering materials, and 6% of the loans sampled had recalculated LTV ratios of more than 25% higher than what was claimed in the offering circular. This overvaluation affected numerous statistics in the Offering Materials...For instance, the Offerings each made representations about the percent
of loans that had LTVs higher than 90% provide the lender little value
cushion to protect against borrower default and loss upon foreclosure.
However, the AVM indicates that a much higher percentage of the loans
had LTVs higher than 90%.
The Offerings uniformly represented that none of the Mortgage Loans that collateralized the Certificates had LTV ratios greater than 100 percent, meaning that the size of the loan is greater than the value of the property. (aka: being "underwater") Loans with over 100% LTV afford the lender no equity cushion and leave the lender with inadequate collateral from the outset of a loan. Allstate's analysis has found that, despite Countrywide's representations, a substantial number of Mortgage Loans had LTVs greater than 100%, as follows:
Allstate has also analyzed the weighted average LTV of the Mortgage Loans in each pool and has found that the weighted average LTV was also overstated, because of the overstatement of individual Mortgage Loans within the pools.
All these lies, and much, much more, can be found detailed in the filing below. At the risk of cheeiness, this is just a sampling of the sampling. And it demonstrates as all those who purchased loans from CFC/BofA that were repped to be in order, will find, following sampling or loan by loan analysis, that Brian Moynihan's bank committed acts of fraud after fraud, putting not only itself, but its underwriter counsel at risk time again. In fact, if there was anything remotely close to a working legal system in the US, what happened to Lehman's Repo 105 auditor, E&Y, should promptly befall every single underwriter's counsel which is jointly liable in representing that the data set forth by the underwriter is correct. But just as importantly, it means that of the hundreds of hundreds billions in loans sold by BofA to hapless dimwits, arguably the bulk of it is now subject to putbacks, and is of far worse quality than previously expected. It also means that the GSEs: those infinite receptacles of mortgage biohazard, are lying consistently when representing the state of their own books, which are likely orders of magnitude worse than the monthly status reports will indicate.
This is just starting to get interesting.
The full Allstate filing which is a must read for everyone is presented below.