Wellie, on schedule, we have our October surprise.
The Wall Street Journal reports that Eric Schneiderman has filed against JP Morgan for mortgage securitizations created and sold by its Bear Stearns subsidiary. I don’t yet have a copy of the claim and will update the post when I get it.
The article indicates that the Bear suit will serve as a template for other mortgage-securitization-related litigation against major originators.
From the WSJ:
Eric Schneiderman, New York’s attorney general, filed the civil lawsuit in New York state court Monday. The case is the first brought under the aegis of a law enforcement group that was formed by President Barack Obama in January to pursue alleged wrongdoing related to the financial crisis.
More cases from the group are expected to follow.
“We intend to follow up with similar actions against other sponsors and underwriters of RMBS,” said an official in the attorney general’s office.
The allegations relate to billions of dollars of subprime securities issued by Bear Stearns Cos. before the troubled firm, now owned by J.P.Morgan, collapsed in 2008. The suit alleges that losses on residential-mortgage securities issued by Bear Stearns in 2006 and 2007 alone were “astounding,” totaling $22.5 billion, or more than a quarter of the original principal balance. The action asks that the company be made to pay an undisclosed amount of damages “caused, directly or indirectly, by the fraudulent and deceptive acts.”
Note that the article indicates that the suit is filed by the New York attorney general alone (despite the “under the aegis”of the mortgage task force). Unless the legal theories and fact sets hinge on unique aspects of New York law, it seems peculiar not to have parallel filings from Federal agencies.
Of course, the timing is quite convenient, since any settlement (the probable outcome, 95% of all lawsuits are settled) will come after the election, which means the Administration gets juicy headlines and faces no pre-election exposure to disappointing outcomes.