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Issue link: http://digital.dsnews.com/i/112425
�� AIG Files Suit Against New York Fed Less than a week after turning away from a lawsuit against the government over the terms of its bailout, American International Group (AIG) Inc. filed a suit against the Federal Reserve Bank of New York over its right to sue other institutions. AIG���s suit seeks no money for damages. Rather, it revolves around an asset purchase agreement (APA) made in 2008 between itself and Maiden Lane II, a vehicle specially made by the New York Fed to purchase RMBS and take off some of AIG���s financial burden. AIG estimates the company lost approximately $18 billion in discounts on the RMBS sold to Maiden Lane II and additional tens of billions as a result of securities fraud from other institutions. In the time since its bailout, AIG has pursued Bank of America (BofA)���referred to by the company as ���one of the most blatant offenders������for $10 billion in damages related to the alleged fraud. By the company���s estimates, more than $7 billion of those damages are connected to RMBS later sold to Maiden Lane II. However, according to a complaint filed January 11 in the New York State Supreme Court, executives from the New York Fed told BofA that AIG had transferred litigation rights over the securities at the time of sale. Lawyers for AIG say the APA for the sale contained no such language. They also assert that Maiden Lane II had never before claimed ownership on litigation rights and even agreed that it only owned contractual rights for the securities. ���Indeed, any argument that AIG assigned its tort claims to Maiden Lane II is contrary to the plain language of the APA . . . . It is also contrary to controlling New York law requiring that any assignment of fraud and other tort claims be both explicit and unambiguous,��� the complaint says. ���It also cannot be squared with . . . Maiden Lane II���s inaction with respect to the claims it now purports to hold.��� A representative for the New York Fed declined to comment on the issue. Ernst Publishing Receives Patent for New System A widely relied upon source of technology and closing cost data in the mortgage industry for 24 years, Albany, New York-based Ernst Publishing Company announced January 28 it received a new patent for its latest system. Ernst���s new system, which it calls, ���System and Method for Generating and Tracking Field Values of Mortgage Forms,��� is a new way for industry participants to keep track of fees and calculate taxes. The new system is part of Ernst���s Smart Query product suite. ���We expect this patent will provide a high level of confidence to our clients, ensuring them that the technology they rely on for guaranteed accurate pricing is truly an Ernst innovation,��� said Gregory E. Teal, president and CEO of Ernst. While the company intends to ���vigorously defend��� its ideas and products, Teal said he is also open to working with other firms across the industry. Ernst���s longstanding technology tools for providing closing costs and fees help users comply with GFE and HUD-1. ���We���re very proud of our technology and all of the intellectual property we have developed over our 24 years in this business,��� Teal said. Flagstar to Pay Assured Guaranty $90M for ���Defective��� Loans A judge in the Southern District of New York ruled February 5 that Flagstar Bancorp will have to pay Assured Guaranty Municipal Corp. more than $90 million for defective mortgages packaged in residential mortgage-backed securities (RMBS). U.S. District Judge Jed Rakoff ruled that Flagstar must pay $90.1 million to Assured for misrepresenting loans in insured securities. Flagstar must also pay interest, attorneys��� fees, and other costs to be determined. In his ruling, Rakoff said the case ���essentially reduces to a resolution of conflicting expert testimony.��� In the end, he sided with Assured���s underwriting expert, who testified that more than 75 percent of the loans collected in a random sample of 800 loans showed evidence of ���material breach��� of Flagstar���s representations and warranties. In a statement, Assured president and CEO Dominic Frederico called the decision ���an important victory��� that ���sets a strong precedent in support of the rights of Assured Guaranty in these cases.��� VISIT US ONLINE @ DSNEWS.COM ���The court recognized and clearly articulated the responsibility of an R&W [representations and warranties] provider to honor its contractual obligations to purchase defective mortgage loans,��� Frederico said. ���His decision establishes clear liability as it relates to originators and securitizers of RMBS transactions and strengthens Assured Guaranty���s resolve to seek full recovery from R&W providers that refuse to recognize this liability.��� Assured has also pursued Credit Suisse and UBS over similar allegations. The ruling may indeed set a precedent for other insurers. MBIA Insurance Corporation has filed its own suit against Flagstar for allegedly breaching loan warranties and has another suit against Bank of America over mortgages originated by Countrywide. What lasting effect the ruling will have is still unclear, however, as it may be turned around. Flagstar issued a statement following the decision, saying that the company ���strongly disagrees with the Court���s ruling and intends to vigorously contest the outcome on appeal.��� End of Foreclosure Review Leads to 839 Layoffs at JPMorgan The $8.5 billion foreclosure settlement on January 7 led to the conclusion of the Independent Foreclosure Review, and it also led to the layoff of more than 800 contract workers at JPMorgan Chase, according to a report from the Wall Street Journal. The Journal first reported 839 workers were laid off, including 529 in Brooklyn and 310 in Florence, South Carolina. In an email, a spokesperson for JPMorgan confirmed the layoffs and said, ���Fewer homeowners are falling behind on their mortgages, so we need fewer employees to assist those who were struggling. We will work with affected employees to find openings at Chase or other local companies.��� The companies involved in the settlement were first required to hire third party consultants to review foreclosure actions that occurred in 2009 and 2010 as part of consent orders from regulators in 2011. The foreclosure reviews were conducted for borrowers who requested them, and if financial harm was found to have occurred due to faulty foreclosure practices, borrowers were eligible to review up to $125,000. According to the Office of the Comptroller of the Currency (OCC), by December 31, 2102���the review���s deadline���only about 99