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Mortgages gone bad -- blockback to underwriters, issuers ?

MBS issuers often assert their own put-back claims against mortgage originators, for instance. But JPMorgan still has an enormous put-back claim by a group of major institutional investors in almost $100 billion of mortgage-backed notes hanging over its head. And lately, the MBS headlines have all been about repurchase claims against JPMorgan. I've said it before: Bank of America's MBS woes are so 2011. These days, at least when it comes to private-label litigation, it's all about JPMorgan.

I told you last week about the hedge fund Baupost's put-back case against JPMorgan's EMC unit in Delaware Chancery Court -- one of the very few cases in which a private investor (as opposed to a bond insurer or government-sponsored entity) has successfully forced an MBS trustee to assert claims on its behalf. But the bond insurers have been busy as well. MBIA filed a new suit against JPMorgan last Friday in federal court in White Plains, New York, claim in g that its predecessor Bear Stearns fraudulently induced MBIA to insure a GMAC securitization. (Okay, it's not a put-back suit, but the claims, as described by MBIA's lawyers at Quinn Emanuel Urquhart & Sullivan, are similar.)

Meanwhile, the bond insurer Ambac and its indefatigable counsel from Patterson Belknap Webb & Tyler are rocketing along in Ambac's sweeping fraud and put-back case against Bear Stearns and its onetime mortgage arm, EMC Mortgage. As the financial writer Teri Buhl was the first to report at her website, last month Ambac brought an action in Connecticut state court seeking to compel the loan reviewer Clayton Financial to produce the Bear MBS documents Ambac has subpoenaed. Clayton was one of the companies (along with Watterson Prime) frequently hired by MBS issuers to re-underwrite loans they purchased from mortgage originators to assess the mortgages' quality before they were securitized. Clayton has been thoroughly scrutinized in the mortgage mess, by former New York attorney general Andrew Cuomo and the Senate's permanent subcommittee on investigations, among others. So it's not news that the company has loan-level information that could support bond insurer claims that Bear bundled deficient mortgages into MBS trusts. But the Patterson Belknap filing included excerpts of deposition testimony from a whistle-blower who worked at both Clayton and Watterson. Like the recently filed, amended Baupost complaint, the whistle-blower deposition excerpts are another example of actual evidence that the due diligence and underwriting shenanigans you see described in complaints against MBS defendants really happened.

JPMorgan's mortgage-backed migraine -- Alison Frankel / Reuters


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