Enough Blame to Go Around

Posted by kevin on November 18, 2013 under Foreclosure Blog | Comments are off for this article

Millions and Millions of dollars were made by mortgage brokers, originating lenders, servicing companies and Wall St, firms selling residential mortgaged backed securities (“RMBS”) . Wall St made even more money by slicing and dicing the RMBS and turning them into collateralized debt obligations (“CDO”). But the assistance of one industry was necessary for the successful sale of RMBS’s and CDO’s. Who could they be? The rating agencies. You see, without an A rating or better, the best instititutional salesmen on Wall St could not unload these securities. So, without the likes of Standard & Poor, Moody’s Investors and Fitch Ratings, we may not have had the real estate bubble and the Great Recession.

In previous blogs, we have pointed out the that government has been slow on the draw going after Wall St investment houses and the Too Big to Fail Banks. But at least they have gotten off a few shots. On the other hand, governmental action has been almost non-existent against the rating agencies.

With the statute of limitations running out, we may be seeing some push back. In the last week, the liquidators of two failed Bear Stearns hedge funds filed suit against S&P, Moody’s and Fitch accusing them of fraudulently misleading investors about the quality of their ratings. The liquidators are looking for over a billion dollars in damages.

The complaint was filed in the New York Supreme Court (in NY, this is the trial level court). The liquidators are looking at the ratings in light of the types of mortgages that were in the mix, the lack of analysis by the rating agencies as proof of a lack of due diligence, and statements made by the employees of the rating agencies in emails where they joked about the quality (or lack thereof) of the mortgages that were part of a deal.

The liquidators filed bare bones complaints in early summer to beat the statute of limitations, and this past week added a 140+ page complaint.

What does this mean if you are a borrower in NJ? Unfortunately, at this time, not much. Many judges do not want to hear the details about the confluence of misdeeds by brokers, mortgage originators, rating agencies, sponsors of trusts, trustee who refuse to bounce back bad mortgages, and servicers who jerk around homeowners who want to get a modification so they can continue to live in their homes. They are granting summary judgment (defenses of borrower thrown out without the need for a trial) to lenders in foreclosure cases with increasing frequency. I have not tried a case in well over 18 months- not from lack of effort on my part. But, perhaps the case against the rating agencies, together with all the news about large banks settling with the SEC or Justice Department for billions of dollars, may cause one or more appellate panels to find consumer fraud or predatory lending; to question whether those allonges that all started to look alike about a year ago are not examples of fraudulent robo-signing; and to force plaintiffs to prove their cases with competent, credible evidence based on personal knowledge. We did get decisions like that back in 2010 and 2011. Let’s go back to the good old days.