A New York bankruptcy judge has ruled that Lehman Brothers Holdings, Inc. will have to pay around $2.4 billion to investors in order to settle disputes over toxic residential mortgage-backed securities (RMBS) sold by the bank during the financial crisis. It might not sound like it initially, but that’s actually good news, as the judge ruled against investors seeking around $11.4 billion.
U.S. Bankruptcy Judge Shelley Chapman made the ruling last week, following a trial that concluded in February. Lehman Brothers collapsed during the financial crisis in 2008, and the case traces back to claims that the bank sold investors billions of dollars of misrepresented home equity loans leading up to the financial crisis.
The trustees claimed that of the approximately $11.4 billion Lehman Brothers’ breaches should owe, that $8.8 billion of that sum consists of breaches based on borrower misrepresentations of income, omissions of debt or failure to use the mortgaged property in accordance with the borrower’s commitments under the application, and mortgage, according to the pretrial brief.
In addition, roughly $370 million consists of DTI breaches, while the remaining approximately $2.3 billion of the trustees’ claim consists of breaches of several additional representations and warranties, “as set forth in the reports of the trustees’ underwriting experts Jim Aronoff and Chip Morrow.”
“The excesses of the pre-2008 mortgage market are now part of the public—and this court’s—record. Lehman’s own documents show it was aware of the widespread problems and deteriorating performance of the loans it had securitized, even as compared to the rest of the industry,” the trustees’ reported earlier in the trial.
The $2.4 billion estimate traces back to earlier in the bankruptcy proceedings ,when that estimate was arrived at by “a group of 14 sophisticated institutional investors including a Goldman Sachs Group Inc. unit.” Lehman asked the court to stick with that figure, and Judge Shelley Chapman this week agreed.
Lehman attorney Todd Cosenza said in a statement, “We are gratified with the court’s well-reasoned and thorough ruling which we believe is a fair result for all creditors of the estate.”