Tonight a New York federal judge, Rakoff, gave monoline Assured Guaranty a huge win. His trial award was near 100 percent of the toxic loans Assured claimed Flagstar Bank had to pay them back. I have been reporting on resi mortgage security putback suits for three years now and this is the first civil suit the market has seen awarded damages after trial.
Assured asked for $93 million in loans to be bought back from the RMBS they insured and Rakoff awarded $89.2 million-Flagstar had already paid a measly few million in putbacks to Assured so that was discounted out of a $90.1mn award. Still to be decided is if the bank that got Assured to insure the toxic rmbs will also have pay their $5 million legal bill and the judge needs to pick an interest rate to be paid. The total damages Assured asked for was $116 million which added in fees and legal bills. In the Flagstar suit the monoline did not try a fraud claim; just a breach of contract claim so that might have helped get the suit through the legal hamster wheel faster.
Wilbur Ross is a major investor in Assured Guaranty and it looks like he picked the right lawyers to fight their case.
“We are thrilled with Judge Rakoff’s landmark ruling in favor of our client Assured Guaranty. This ruling is a significant milestone in forcing the banks to honor the contractual commitments they made and have long sought to avoid. Susman Godfrey was honored by the trust Assured Guaranty placed in us to handle this important case at trial,” said attorney Jacob Buchdahl the legal mastermind behind the win.
This decision should also affect the monoline suits NY State Judge Ramos is ruling over. You know the billions in putback claims first filed by Patterson Belkanp for Ambac, Assured, Syncora against JP Morgan/Bear Stearns. That’s because Ramos said in a recent hearing he wanted to wait to see how Rakoff decied on the use of sampling. This means the monolines don’t have to go and prove loan by loan which ones had faults in them that would have forced the banks to buy them back because their contract said they would.
Judge Rakoff said in his decision it was irrelevant what caused the loans to default. But for monlines suing with a fraud claim it will be relevant.
If you read the transcript from the PBWT hearing we learn Judge Ramos doesn’t really like these suits and isn’t favoring the monoline fraud claims filed by PBWT against JPM/Bear/EMC. Even though they got over 30 whistleblowers to come forward against Bear/JPM and they have all kinds of internal documents now that show the double dipping scheme I first reported on for The Atlantic. Ramos also admitted at the hearing he hadn’t even read through all the docs and evidence PBWT filed ( its kind of absurd he could do that before a motion to dismiss hearing but hey).
Ramos is important because JP Morgan just got him assigned last month as the judge in the NJ AG’s civil rmbs fraud suit against them and that is for over $20 billion in claims.
I’ll be watching to see what my fav legal columnist at Reuters, Alison Frankel, writes on this big legal decision. She is the only other journalist, beside me, who has dutifully kept readers informed about the impact of these mortgage securities fraud suits against the big banks… suits I’ve told Keiser Report viewers will likely cost them billions. JP Morgan just has a hard time admitting it.