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