UPDATE: Investors Sue Citi Over Poor RMBS Underwriting -Citi
November 05 2010 - 10:56AM
Dow Jones News
Citigroup (C) revealed in a regulator filing Friday that several
investors have sued the bank over misstatements or omissions in its
underwriting of residential mortgage-backed securities.
The Charles Schwab Corp. (SCHW), the Federal Home Loan Banks of
Chicago and Indianapolis, Cambridge Place Investment Management and
other investors filed suits against Citi and some of its affiliates
since July.
Essentially, the plaintiffs seek damages for loans that were
part of mortgage securities but fell short in some way to what has
been described in the original representation and warranty
regarding these loans.
In its regular quarterly filing with the Securities and Exchange
Commission, Citi said "the subprime-mortgage-related proceedings
described above are in their preliminary stages," and wouldn't
estimate on the range of loss expected.
The suits parallel a case that a group of key players in
mortgage market seeks to file against Countrywide, now part of Bank
of America Corp. (BAC).
That effort--led by Allianz SE's (ALV.XE) Pacific Investment
Management Co., the world's largest bond fund, and including
BlackRock Inc. (BLK), the Federal Reserve, Freddie Mac (FMCC),
Metropolitan Life Insurance Co., Neuberger Berman Europe and
Western Asset Management Co.--was seen as the first to try to build
a case based on the common belief that mortgage underwriting at the
height of the boom was slipshod, and poor documentation
prevalent.
Citi's disclosure Friday confirms that other groups are pursuing
that thesis.
If any of the Citi suits prove successful, they could set a
precedent that would allow other investors try to recover
compensation from mortgage lenders.
So far, the government mortgage agencies Fannie Mae (FNMA) and
Freddie Mac have been successful in getting banks to take back
poorly underwritten loans, but that is primarily because they buy
delinquent loans out of mortgage pools and go back to trace how the
loan was put together.
-By Prabha Natarajan, Dow Jones Newswires; 212-416-2468;
prabha.natarajan@dowjones.com.