Investor Lawsuits Over MBS Loan Quality Continue to Mount
Litigation by investors regarding the quality of loans in Mortgage Backed Securities continue to pile up. In an April 4, 2011 complaint filed in the U.S. District Court for the Southern District of New York, Union Central Life Insurance Co. alleged that Credit Suisse Securities (USA) LLC and affiliated entities made false statements and omitted information about the quality of loans included in its MBS pools. According to a Law360 article, the suit claims that Credit Suisse First Boston Mortgage Securities Corp. and certain of its directors ignored consultants who found that 37% of the loans in the pools failed to conform to stated loan underwriting guidelines. According to the Complaint, the lenders originating the underlying mortgages regularly granted exceptions to loan guidelines; pressed appraisers to inflate home values; and failed to verify borrowers' income and monitor loan officer activity. The suit advances claims of fraud, negligent misrepresentation, unjust enrichment and purported violations of securities law.
The Union Central Life Insurance case is yet another example of continued litigation surrounding subprime lending. While the first wave of litigation primarily concerned consumer claims, more recent litigation brought by MBS investors have attacked the institutions who underwrote the securitized vehicles.
