This page has been archived and commenting is disabled.

JPM's Mortgage Unit Sued To Disclose Loan Quality Data, Following Allegations It Misrepresented Over 70% Of Loan Portfolio

Tyler Durden's picture


The lawsuits over loan level detail continue to come fast and furious. After late last year Allstate sued Bank of America, providing proof that that the Too Big To Fail bank had repeatedly lied about the quality of its loans and broadly misrepresented its loan book to purchasers, today the Fed's favorite bank, JP Morgan, and specifically its EMC Mortgage division, were sued by Wells Fargo (the trustee) of a mortgage portfolio for refusing to turn over documents detailing the quality of loans bought by the trust. Bloomberg reports that Wells Fargo & Co., the trustee, is seeking access to files for more than 2,000 underlying mortgages in the Bear Stearns Mortgage Funding Trust 2007-AR2, according to the complaint filed today in Delaware Chancery Court in Wilmington. “The trustee has repeatedly requested that EMC provide
access to the subject documents,” Wells Fargo said in the
complaint. “EMC has played proverbial ‘rope a dope’ and
otherwise continued to drag its feet, and has produced
nothing.” Reading through the complaint, we find that the same rep fraud that Bank of America continues to be in hot water for (and that seemingly everyone involved, and on the defensive side, believes will eventually get swept under the rug) has been quite rampant at all other banks. Specifically, "on August 31, 2010, the Trustee sent a letter to EMC, notifying EMC that the Trustee had received a letter from the law firm of Grais &  Ellsworth LLP (“Grais”), which represented an investor in the Trust owning 42% of the outstanding face amount of the Certificates in the Trust, dated August 3, 2010 (the “Grais Letter”). The Grais Letter gave notice to the Trustee that Grais had investigated the condition of 1,317 of the 2,049 Mortgage Loans held by the Trust, and determined that EMC appeared to have violated its representations and warranties in the MLPA with respect to 938 of those loans." That's roughly 70%: a number which any jury will find to be beyond statistically significant and will certainly impugn intent to defraud. Not surprisingly, neither JPM nor EMS has scrambled to provide the backup... or any required information.

More from Bloomberg:

Wells Fargo, based in San Francisco, began requesting the documents in January last year and reached an agreement with EMC in December on access to files for 400 loans. EMC had until Jan. 12 to produce documents on the first 100 loans, according to the complaint.

EMC failed to produce the documents “culminating more than a year of good-faith negotiations and misplaced patience by the trustee in a futile attempt to avoid litigation,” Wells Fargo said in the complaint.

And while sooner or later justice will be served to those who blatantly lied to purchasers, one would at least hope that this practice may have ended. Wrong. In another article by Bloomberg written by Bob Ivry and Bradley Keoun we read that according to an internal Freddie Mac review obtained by
, "three years after bad home loans helped trigger the
recession and six weeks after the government cashed in the last
of its $45 billion Citigroup investment, the New York-based bank
is still selling mortgages that violate quality standards."

Fifteen percent of the performing loans Citigroup sold to the government-owned mortgage-finance company in the second half of 2009 and the first half of 2010 had such flaws as missing appraisals or insurance documents or income miscalculations, according to the review of 375 mortgages. The target for defects should be about 5 percent, said Tim Rood, a former executive with Freddie’s sister agency, Fannie Mae, and now managing director at Washington-based advisory firm Collingwood Group LLC.

“What you hear from the banks is it’s overwhelmingly mortgages that were originated in ‘05, ‘06, ‘07 and a bit into ’08 that are getting put back to the banks,” said Chris Kotowski, an analyst for New York-based Oppenheimer & Co. “In 2010, if Freddie still finds 15 percent of performing mortgages had flaws, that’s a surprising statistic. I assume thoughtful investors will be surprised.”

But don't expect Citi to give a mea culpa after being caught red handed:

Sanjiv Das, New York-based chief executive officer of CitiMortgage Inc., the Citigroup unit that originates loans and buys them from smaller lenders, declined to comment on the Freddie Mac findings. He said the bank’s own quality control reviews show an improvement in underwriting that “is one of the most outstanding stories in our business.” Freddie Mac has no published standard for defect levels. "My own information based on our defect rates tells me we are doing a fantastic job,” Das said.

Since Citi is for all intents and purposes still a very much bankrupt ward of the state, Das' assumption is certainly good enough... for government work. As for investors, they certainly seemed surprised, and the result was a broad 7% drop in Citi stock.

And while investors may hope that the recent attempt by Bank of America to hush up the GSEs and settle hundreds of billions of misrepresented loans for pennies on the dollar, courtesy of the complicity of former BofA GC Tim Mayopoulos, who is far more concerned about preserving his millions in annual compensation than actually performing his fiduciary duty, which is protecting the interests of his superiors: American taxpayers (after all Fannie is insolvent and is nationalized), this will likely not end as clinically as desired. We are confident that as more disclosures, and allegations of fraud, such as those recently provided by Allstate and Wells Fargo appear, more investors who have lost money on the biggest housing crash in history will come out of the woodwork and will certainly demand at least a few ounces of flash, all of which will bite into assorted TBTF bottom lines.

Full complaint filed by trustee Wells Fargo.



- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Tue, 01/18/2011 - 19:12 | Link to Comment LostWages
LostWages's picture

Holding shitty paper are you?  Not to worry....The BenBernank will buy it and give you face value for it.  Also Wells Fartgo can put in a handsome commission on the transaction too, as The BenBernank is most generous to its favorite sons.


Tue, 01/18/2011 - 19:51 | Link to Comment SWRichmond
SWRichmond's picture

jam 'em for the commish, bitches!

Tue, 01/18/2011 - 20:18 | Link to Comment unununium
unununium's picture

The signs are clear.  There will be another disastrous crash, and an ensuing emergency action by Congress to fix, for the sake of civilization itself.

Tue, 01/18/2011 - 20:25 | Link to Comment Careless Whisper
Careless Whisper's picture

not so fast, next time around may be different. even the ipod generation knows that jp morgan is the "itty bitty piggy" (courtesy of nicki minaj) too funny.


Tue, 01/18/2011 - 19:18 | Link to Comment topcallingtroll
topcallingtroll's picture

The banks will make them litigate every single loan and fight class action status. This could easily take ten years or longer. If discovery takes longer than a year imagine how everything else will be dragged out as citi, jpm, et sl make them litigate anew for every single individual loan. This is likely to be a non event, but a nonevent that hangs over the market at least another decade.

Wed, 01/19/2011 - 09:30 | Link to Comment TheProphet
TheProphet's picture

In these pages, it has been written that the courts are willing to accept compiled statistics on bundles of loans to determine issues about those loans. The courts have, at least to date, gone with the approach that it is not necessary to litigate individual mortgages.

Tue, 01/18/2011 - 19:13 | Link to Comment cxl9
cxl9's picture

EMC came from Bear Stearns. It was originally their mortgage finance arm. I tried to do a short sale (purchase) from them in 2006 and they were the most inept, obstinate, unresponsive, useless company I had ever dealt with. I was happy to see them go down in flames. I can only imagine the toxic loans that were run through that operation.


Tue, 01/18/2011 - 19:16 | Link to Comment ewmayer
ewmayer's picture

So this means financials rally hugely tomorrow, yes?

Tue, 01/18/2011 - 20:05 | Link to Comment Joe Sixpack
Joe Sixpack's picture

??, ???????!

Tue, 01/18/2011 - 19:21 | Link to Comment Rainman
Rainman's picture

It's inevitable. The banks cannabalize each other. The gubermints do likewise to each other. This is actually bullish.

Tue, 01/18/2011 - 19:28 | Link to Comment Gloomy
Gloomy's picture

Yeah, maybe if all of the wolves get busy trying to eat each other they will leave the sheep alone for awhile.

Tue, 01/18/2011 - 19:22 | Link to Comment Seasmoke
Seasmoke's picture

looks like we are getting close in time, where it will be every man, woman and bank for themsleves

Tue, 01/18/2011 - 19:34 | Link to Comment goldmiddelfinger
goldmiddelfinger's picture

A penny for your thoughts.

Tue, 01/18/2011 - 19:31 | Link to Comment kornholio
kornholio's picture

nothing matters anymore who is screwing who, just buy the fucking dip cause the stock market ONLY goes up....

Tue, 01/18/2011 - 19:31 | Link to Comment Encroaching Darkness
Encroaching Darkness's picture

I keep waiting for the entire world to refuse to do business with JPM, GS and their ilk. What's it gonna take, people?
You KNOW they're lying to you, trying to screw you, and looking for new ways to put it to you. Why is anyone in the WORLD doing business with GS and JPM and .....
(add your favorite financial fraudster here)

Tue, 01/18/2011 - 19:33 | Link to Comment goldmiddelfinger
goldmiddelfinger's picture

Only 70%? What about the long side? Or is this a net number? Was the "30%" Paulson?

Tue, 01/18/2011 - 19:34 | Link to Comment tellsometruth
tellsometruth's picture

hmmmm i would never suspected JP (Rothschild) of any misrepresentation...

The five sons established branches in the principal cities of Europe, the most successful being James in Paris and Nathan Mayer in London. Ignatius Balla in The Romance of the Rothschilds46 tells us how the London Rothschild established his fortune. He went to Waterloo, where the fate of Europe hung in the balance, saw that Napoleon was losing the battle, and rushed back to Brussels. At Ostend, he tried to hire a boat to England, but because of a raging storm, no one was willing to go out. Rothschild offered 500 francs, then 700, and finally 1,000 francs for a boat. One sailor said, "I will take you for 2000 francs; then at least my widow will have something if we are drowned." Despite the storm, they crossed the Channel.

The next morning, Rothschild was at his usual post in the London Exchange. Everyone noticed how pale and exhausted he looked. Suddenly, he started selling, dumping large quantities of securities. Panic immediately swept the Exchange. Rothschild is selling; he knows we have lost the Battle of Waterloo. Rothschild and all of his known agents continued to throw securities onto the market. Balla says, "Nothing could arrest the disaster. At the same time he was quietly buying up all securities by means of secret agents whom no one knew. In a single day, he had gained nearly a million sterling, giving rise to the saying, ‘The Allies won the Battle of Waterloo, but it was really Rothschild who won.’"*

In The Profits of War, Richard Lewinsohn says, "Rothschild’s war profits from the Napoleonic Wars financed their later stock speculations. Under Metternich, Austria after long hesitation, finally agreed to accept financial direction from the House of Rothschild."47



46 Ignatius Balla, The Romance of the Rothschilds, Everleigh Nash, London, 1913

* The New York Times, April 1, 1915 reported that in 1914, Baron Nathan Mayer de Rothschild went to court to suppress Ignatius Balla’s book on the grounds that the Waterloo story about his grandfather was untrue and libelous. The court ruled that the story was true, dismissed Rothschild’s suit, and ordered him to pay all costs. The New York Times noted in this story that "The total Rothschild wealth has been estimated at $2 billion." A previous story in The New York Times (May 27, 1905) noted that Baron Alphonse de Rothschild, head of the French house of Rothschild, possessed $60 million in American securities in his fortune, although the Rothschilds reputedly were not active in the American field. This explains why their agent, J.P. Morgan, had only $19 million in securities in his estate when he died in 1913, and securities handled by Morgan were actually owned by his employer, Rothschild."

47 Richard Lewinsohn, The Profits of War, E.P. Dutton, 1937



After the success of his Waterloo exploit, Nathan Mayer Rothschild gained control of the Bank of England through his near monopoly of "Consols" and other shares.

Tue, 01/18/2011 - 19:38 | Link to Comment goldmiddelfinger
goldmiddelfinger's picture

That's a great story. Jay Gouldesque.

Tue, 01/18/2011 - 19:42 | Link to Comment tellsometruth
tellsometruth's picture


Story?  sit on that middle finger...


Tue, 01/18/2011 - 20:35 | Link to Comment goldmiddelfinger
goldmiddelfinger's picture

Did you Wiki Jay after I posted to see who he was?

Tue, 01/18/2011 - 19:35 | Link to Comment Quinvarius
Quinvarius's picture

How come Jamie Dimon reports he doesn't have any problems and never did?  JPM sailed throgh 2008 the same way Madoff sailed through 2000.  And no one can replicate the known trades that either of them say have been profitable for them

Tue, 01/18/2011 - 19:48 | Link to Comment tellsometruth
tellsometruth's picture

JP in da House!  Cover their Arse!

With the control of the money came the control of the news media. Kent Cooper, head of the Associated Press, writes in his autobiography, Barriers Down,

"International bankers under the House of Rothschild acquired an interest in the three leading European agencies."51

Thus the Rothschilds bought control of Reuters International News Agency, based in London, Havas of France, and Wolf in Germany, which controlled the dissemination of all news in Europe.



50 Paul Emden, Behind The Throne, Hoddard Stoughton, London, 1934

51 Kent Cooper, Barriers Down, pg. 21

Tue, 01/18/2011 - 19:56 | Link to Comment Problem Is
Problem Is's picture

Jamie "Shoe Shine Boy" Dimon
If it wasn't for TBTF fraud as a business model and zero criminal enforcement from Eric "Empty Suit" Holder...

Jamie & Lloyd would have to fall back on their only other talent...

They'd be Amerika's shoe shine boys...

Tue, 01/18/2011 - 21:08 | Link to Comment eatthebanksters
eatthebanksters's picture

They'd have the same job they've always had...they suck dick for dollars...

Tue, 01/18/2011 - 20:00 | Link to Comment Rainman
Rainman's picture

JPM and all the big boyz swallowed up the fatally injured on a backup deal with UST and FED post 2008, still in place to this day. How can anyone assume otherwise....they all had huge counterparty risks everywhere. Once the wink-wink was in place the surgery began.

These court cases eventually won't amount to jack shit, except serious bangs to earnings...just settlement asset transfers from one set of crooks to another.  But the big deal becomes appeals on bigger numbers that may eventually get to SCOTUS on appeals and that would primarily be about establishing precedents. And just wildguess who gonna' wins dat  ?? Google Chrysler bondholders for insights.

Tue, 01/18/2011 - 21:11 | Link to Comment eatthebanksters
eatthebanksters's picture

it won't matter....we're toast way before then.  If the BenBernank continues printing money to pay the bills, we're done.  If he stops and we default we're's over, the only question is when.

Tue, 01/18/2011 - 20:06 | Link to Comment Logans_Run
Logans_Run's picture

I suspect that TD was correct on his ascertion of awhile ago that the only winner in this mess will be the lawyers. I was told by my attorney not to contest the title to my Texas home because BofA will call out their corporate lawyers and bury me in discovery and shitty motions that will run up the legal fees of my lawyer. This presents a real dilemma because I may not be able to get clear title to sell the place. Thank you Bank of America!

Tue, 01/18/2011 - 21:17 | Link to Comment eatthebanksters
eatthebanksters's picture

So here's what you do...send your servicer a lette requesting a copy of your wet signed note held by the 'holder in due course' with all endorsements and have this right under the Dodd/Frank FinReg Legislation of 2010.  They must provide you with a response within 20 days and a copy (if they have it) or explanation within 60 days.  Tell them that your attorney told you that fighting a foreclosure in a non-judicial state  was foolish, but that if the foreclosure was knowingly done using incomplete, erroneous or fraudulent documents that you will have a cause of action, post foreclosure, for actual and additional damages. 

This makes them sit up in their chair as you can find an ambulance chaser to prosecute your case and win.

Tue, 01/18/2011 - 21:54 | Link to Comment Cursive
Cursive's picture


Love the userid, love the avatar.  Listen to eatthebankers' advice.  You don't need no stinking lawyer.  Take the fight to BAC.

Tue, 01/18/2011 - 20:22 | Link to Comment Cdad
Cdad's picture

You know, as a short seller in a market that goes up every single day, it is amazing to me how butt ugly the news is all the time as bulltards swarm around me, Larry Kudlow, and everyone else in the freakin' world.  Now, who would have guessed that some bad feelings would have bubbled up between "X" and JP Morgan?  ME! 

I cannot figure out which bank I hate more...JPM or Blight on America.  Hmmmmm?  So much to hate in both camps.

We are one "Gap Up" morning S&P nonsense move from this stupid rally being over.  CUE THE ROBO!

Cdad sippin' a martini

Tue, 01/18/2011 - 20:29 | Link to Comment Rainman
Rainman's picture

...cheers, dad....remember all real martinis are one drop of very dry vermouth. 

Tue, 01/18/2011 - 20:39 | Link to Comment goldmiddelfinger
goldmiddelfinger's picture

In the words of Churchill, "Just let the gin see the vermouth bottle"

Tue, 01/18/2011 - 20:44 | Link to Comment Cdad
Cdad's picture


Personally, I prefer that the barman simply whispers the word "vermouth" over top the glass.

Tue, 01/18/2011 - 21:03 | Link to Comment Rainman
Rainman's picture

...championship idea. Better than fumes.

Tue, 01/18/2011 - 22:04 | Link to Comment Ned Zeppelin
Ned Zeppelin's picture

Now you're talking: the martini must be shaken, never stirred, and I'm sorry it's gin, not vodka, and Bombay with the Queen, not that Sapphire abomination best reserved for gin and tonics and other trifling cocktails; the martini is shaken in a metal container, never glass, until the ice can be scraped from the shaker with the tip of your fingernail (and don't shake it too long - grown men have been known to have to urinate on their hands to free them from their cryogenic prison if they dallied too long).

I happen to like a vermouth, it must be French of course, never Italian (unless you are camping out),and Nouille Prat and the old recipe at that - you did set aside a store of several bottles before they changed the formula, right? I like my gin from the freezer and the NP at room temperature. Not sure why. Then the olives, 2 jumbos dried on a paper towel if you're a purist, direct from the jar with a bit of juice still clinging if you are of a dirty mind; and then the pour, with micro-crystals of ice floating on the surface, ice cold perfection and for god's sake never, never nurse a martini drink the damn thing and have another but remember martinis are like tits: one is not enough and three is too many.


Tue, 01/18/2011 - 22:36 | Link to Comment eatthebanksters
eatthebanksters's picture

Sapphire IS Bombay...

Wed, 01/19/2011 - 07:14 | Link to Comment Ned Zeppelin
Ned Zeppelin's picture

I am merely having fun. Sapphire is Bombay, but (in my perfect martini) it is not the Bombay that you use for a martini.  Gin and tonic? all day, preferably a hot one poolside.

Tue, 01/18/2011 - 23:47 | Link to Comment NorthenSoul
NorthenSoul's picture


It is Noilly Prat.

"Nouille" is French for "noodle", which, I'm sure you shall agree, cannot possibly share a glass (gasp!!) with any dignified beverage of your choice.


Now, if said noodles goes into a plate with pesto "et un soupcon d'andouille", as Voltaire was fond to say; "You da man!"


He he!

Wed, 01/19/2011 - 07:12 | Link to Comment Ned Zeppelin
Ned Zeppelin's picture

Sorry my bad.  I should have checked but was in The Zone. 

Wed, 01/19/2011 - 01:31 | Link to Comment UncleFester
UncleFester's picture

Fruitcake much?  A tumbler of Bourbon, maybe on the rocks...any drink with anything other than ice is for pussies and fruitcakes.  At ZH it's gold, guns and whiskey...didn't you get the memo?

I Fester


Wed, 01/19/2011 - 07:17 | Link to Comment Ned Zeppelin
Ned Zeppelin's picture

I respect your choice of beverage sir. I think you need to try a perfectly made martini. They are hard to come by. Most bars fails miserably. It is an art form, and yes, I agree, Jack and branch water also has its charms. 

Wed, 01/19/2011 - 09:38 | Link to Comment TheProphet
TheProphet's picture

I spray the edge of the glass with vermouth.

Tue, 01/18/2011 - 22:06 | Link to Comment Ned Zeppelin
Ned Zeppelin's picture

or, face the east, across the Atlantic, and softly whisper, "Degaulle" 

Tue, 01/18/2011 - 21:21 | Link to Comment eatthebanksters
eatthebanksters's picture

one drop of vermouth in the shaker first, just to touch the ice...then the gin...covered and shaken...viola, add an olive (or in my case a couple of onions) and you have bliss.

Wed, 01/19/2011 - 05:38 | Link to Comment laughing_swordfish
laughing_swordfish's picture


You are obviously a Gibson man...

A Sapphire Gibson (or two) after a hard days' trading is always called for..

Tue, 01/18/2011 - 22:00 | Link to Comment Cursive
Cursive's picture

Fratricide?  And the timing of this?  WFC reports tomorrow morn.  Maybe WFC drops their loan loss reserve, but it would almost be as criminal as JPM in light of this lawsuit.

Wed, 01/19/2011 - 00:12 | Link to Comment cranky-old-geezer
cranky-old-geezer's picture

JPM explains their MBS strategy:

Do NOT follow this link or you will be banned from the site!