Lehman Brothers Holdings Inc. defended against allegations last week from the residential mortgage-backed securities (RMBS) trustees—as the trustees questioned the bank on the value of the claims submitted during the financial crisis in 2008, according to pretrial briefs in an article released by Law360.
Ultimately the issue here is that trustees argue Lehman Brothers’ “straightforward breach of contract claims” are worth $11.4 billion, while the bank argued they’re worth $2.38 billion or less.”
Lehman Brothers’ pretrial brief begins by clarifying that, “there is no “Lehman” but rather, what remains is a Plan Administrator.” And according to the administrator, many of the trustees’ claims have been “significantly overstated,” despite the plan administrator’s many attempts to “work diligently towards a resolution” in regards to the hundreds of thousands of claims filed by the trustee.
However, the trustees are disagreeing in their own pretrial brief that there’s “overwhelming and largely unrebutted” evidence that Lehman repeatedly breached its contracts on tens of thousands of loans.
The trustees claim 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 trustees’ brief also notes that an additional $370 million consists of breaches related to misrepresentations regarding borrowers’ ratio of debt to income, and the remaining $2.3 billion consists of breaches related to several additional representations and warranties.
According to the trustees’ pretrial brief, these numbers are not surprising.
“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.