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62 | Th e M Rep o RT O r i g i nat i O n s e r v i c i n g a na ly t i c s s e c O n da r y m a r k e t SECONDARY MARKET Department local eDition local eDition Prudential settles lawsuits with Bank of america over mortgage-Backed securities A 2013 frAud clAim is finAlly put to rest. NEW JERSEY // Recently filed New Jersey federal court documents reveal that Prudential Insurance Co. has moved to settle its ongoing lawsuits with Bank of America NA, Merrill Lynch & Co. Inc., First Franklin Financial Group, and a number of lenders in the mortgage industry. According to Law360, the suits, which were first filed in March 2013, alleged Bank of America and others knowingly sold Prudential $2.1 billion in low-quality mortgage-backed securities—and made false statements about them. Prudential claimed this left the company with more than 10,000 defective home loans, many that eventually went into default or foreclosure. The suits also claimed there were deficiencies in loan-to-value ratios, owner-occupation levels, and more, and that the credit ratings touted by the defendants were "garbage," according to federal court documents. Many of the claims made by Prudential were dismissed earlier this year, according to Reuters, when District Judge Stanley R. Chesler heard the case in February. Chesler determined that Prudential did not effectively prove that BofA or Merrill Lynch had lied to rating agencies about the quality of their loans, and he dismissed Prudential's negligent misrepresentation claim. Additionally, Chesler also said Prudential's "after-the-fact" computer analysis of securities— a key piece of evidence for the plaintiff—was unreliable. In the end, Chesler deter- mined Prudential could move forward with only one count of equitable fraud—an allega- tion that the defendants acted as underwriters, not sponsors or issuers, on 21 securities. The claim was finally settled April 22, when both parties filed a stipulation of dismissal with prejudice. Though terms of the settlement were not stipulated in the court documents, they did say each party would be responsible for its own expenses stemming from the lawsuit. This isn't the first time Bank of America has been involved in a lawsuit of this nature. In August 2014, it reached a $16.65 billion settlement with federal and state authorities regard- ing similar liabilities. It was also dealt a $1.27 billion civil penalty in July 2014 when the U.S. government claimed its Countrywide unit defrauded Fannie Mae and Freddie Mac into buying low-quality loans. At the time of publication, representatives at Prudential could not be reached. Bank of America spokesman Lawrence Grayson told MReport that the company had no comment on the recent settlement. Bank asks appellate court to revive 2012 mortgage-Backed securities suit if successful, the clAim could open doors for more pre-crisis frAud suits. NEW YORK // HSBC Bank has asked the Court of Appeals in White Plains, New York, to consider reviving a 2012 law- suit against Deutsche Bank Structured Products Inc. The 2012 claim alleged that Deutsche misrepresented the quality of residential mortgages it sold to investors in 2006. On the original claim, Deutsche's defense was that the statute of limitations had already passed. Though a state judge rejected this defense, a Manhattan appeals court reversed this decision and officially dismissed the suit in 2013. Now, HSBC is asking the court to reconsider the case, claiming that the six-year statute of limita- tions should not begin when securities are first purchased, but instead when the issuers of those securities refuse to buy them back or replace them when their qual- ity is deemed less-than-ideal. According to Paul Clement, at- torney for HSBC, if the new claim is revived—and successful—it could open the door for other mortgage fraud cases down the line, particu- larly ones from the years just before the housing crisis hit. The Association of Mortgage Investors agrees, too. According to a recent AMI brief, if the court were to rule in Deutsche's favor, it could close down millions of dol- lars in claims by investors–particu- larly those who failed to file suit within the six-year time limit. David Woll, representative for Deutsche, said reviving the claim could create financial uncertainty, causing a slippery slope in which security issuers can be sued for de- cades after a deal has been closed. "If you adopt [HSBC's] theory," Woll said, "our grand- children could be here in 2042." The claim is currently in the New York State Court of Appeals No. 85 and will go before a six-judge panel. One of the judges, Eugene Pigott, ex- pressed sentiments that seemed to favor HSBC. Issuers, he said "would be less inclined to put bad loans in these [securities], if 15 years down the road it had to be cured or repurchased." In response, Woll stated that six years should be enough time for both issuers and investors to determine if a mortgage is of quality or not. SECONDARY MARKET