Wednesday, January 26, 2011

JP Morgan fights against providing loan level data on RMBS deals

According to an article on Bloomberg, JP Morgan is refusing to provide the trustee for several RMBS deals with the loan-level data necessary to determine if the loans must be repurchased under the representation and warranty provisions of the deals.
A JPMorgan Chase & Co. unit refused to give mortgage trust investors more than 500,000 loan files that would show them how many of the loans are bad and must be repurchased, a trustee said in a court filing.
A unit of Deutsche Bank AG said it has a right to the files as trustee for the investors. The investors own 99 mortgage- backed-securities trusts that were built on loans made by Washington Mutual Bank before it was seized by regulators and sold to JPMorgan in 2008 for $1.9 billion.
“These access rights are unqualified and have been unequivocally breached by JPMC,” Deutsche Bank said in court papers filed in federal court in Washington on Jan. 14.
Mortgage-bond investors and bond insurers have accused loan sellers like WaMu and JPMorgan or bond underwriters of often misrepresenting the quality of the underlying debt. Those misrepresentations can trigger contractual or legal provisions requiring repurchases, investors claim. So-called mortgage putbacks may cost banks and lenders as much as $90 billion, JPMorgan bond analysts said in October.
... Deutsche Bank National Trust Co.’s suit on behalf of investors against New York-based JPMorgan and the Federal Deposit Insurance Corp. claims the trusts have lost $6 billion to $10 billion in value. WaMu expected some of the loans it put in the trusts to go bad, according to a U.S. Senate investigation cited by Deutsche Bank.
JPMorgan and the FDIC have asked a judge to throw out the case. The Deutsche Bank filing is the trustee’s response to the motion to dismiss the lawsuit.
... Should Deutsche Bank win the case on behalf of the trusts, it would either have a claim against JPMorgan or the FDIC, depending on how the judge rules, Starke said. 
In a different lawsuit,
... JPMorgan’s EMC Mortgage said this week that it plans to turn over documents detailing the quality of loans in a mortgage trust managed by San Francisco-based Wells Fargo & Co. in an attempt to resolve a lawsuit.
Wells Fargo sued seeking access to files for more than 2,000 underlying mortgages in the Bear Stearns Mortgage Funding Trust 2007-AR2. The complaint, filed in Delaware Chancery Court, accused EMC of playing “rope a dope” and dragging its feet.
Bottom line:  all of this would have been preventable if current loan-level information on an observable event basis had been provided through an independent third party.

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