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Judge Disagrees with JPMorgan’s Argument to Dismiss FHFA MBS Suit

A U.S. district judge in Manhattan squashed an attempt by ""JPMorgan Chase"":http://www.jpmorganchase.com/corporate/Home/home.htm to fully dismiss a lawsuit from the ""Federal Housing Finance Agency"":http://www.fhfa.gov/ (FHFA) over alleged misrepresentation of mortgage-backed securities (MBS).


In its case, FHFA contends that Fannie Mae and Freddie Mac purchased approximately $33 billion of MBS sponsored or underwritten by JPMorgan, Bear Stearns, or Washington Mutual--the latter two entities having been acquired by JPMorgan Chase in 2008. The offering documents for the certificates sold to the GSEs contained false or misleading statements or omissions, FHFA alleges.

The loans contained in those securities were improperly underwritten, FHFA says, leading to losses when they defaulted in the housing crash.

In its motion to dismiss, JPMorgan argues--among other things--that FHFA's complaint does not contain enough factual support that the loans in question were not underwritten properly.

Judge Denise Cote disagreed.

""The Amended Complaint devotes over 60 of its 321 pages to ... factual support,"" Cote says ""in her ruling"":http://www.nysd.uscourts.gov/cases/show.php?db=special&id=238. ""Taken together, these allegations amply support FHFA's assertion that the Offering Documents for the Securitizations contained false statements regarding originators' compliance with underwriting standards.""

Cote cited heavily a decision she made in May, when UBS tried to dismiss a similar case from FHFA. That motion was also denied.

The matter wasn't a total loss for JPMorgan, however. Cote did agree with the bank that FHFA failed to prove fraud on JPMorgan's part regarding statements on owner-occupancy rates and loan-to-value ratios for the mortgages in the securities.

Cote's ruling will almost certainly affect other defendants in the case, including Credit Suisse, Citigroup, and Goldman Sachs.

A spokesperson for the bank did not immediately return a request for comment.


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