Judge Refuses to Totally Dismiss $1B Mortgage Fraud Case Against Credit Suisse Unit

A judge has ruled that the $1B mortgage fraud case brought against Credit Suisse (CS) unit DLJ Mortgage Capital can be resubmitted. This ruling reiterated U.S. Bank National Association’s contention that a six-year statute of limitations did not bar its claims, which it brought as a trustee.

In 2015, New York Supreme Court Judge Marcy S. Friedman had dismissed the case because the trustee had not made a repurchase demand of Ameriquest, the loan’s originator, according to the pre-suit requirement. However, she rejected DLJ’s claim that because these conditions were not met prior to the statute of limitations they were time barred. Friedman said that if U.S. National were to refile the case, then the issue of the repurchase demand’s impact on the trustee’s ability to file litigation in this matter would be determined on a “fully developed record.”

U.S. National sued DLJ Mortgage Capital in 2013, accusing the securitizer of not complying with its duty to buyback loans that breached of a number of warranties and representations that DLJ made in a contract presiding over the sale of 4,534 residential mortgage loans. The loans, originated by Ameriquest Mortgage Co., were securitized by the trust, sold by DLJ to investors, and came with multiple assurances about their quality. Such guarantees were supposed to place any risks from faulty mortgages with the originator.

The plaintiff contends that rather than construct a loan pool with quality mortgages, Ameriquest, which is no longer in operation, used faulty loans. As a result, contends U.S. National, the trust lost $227M.

The trust believes that DLJ should repurchase the toxic debt because the buyback details were ratified via a contract obligating the securitizer to remedy or repurchase loans that failed if Ameriquest were not able to fulfill this duty. In her ruling on March 29, Friedman affirmed her previous decision to dismiss the case because, per the contract, the trustee should have made a repurchase demand on Ameriquest before filing a complaint against DLJ. Still, she said, the claims are not dead.

In other mortgage fraud news, Credit Suisse is now going to pay National Credit Union Administration board $50.3M to resolve allegations that it lied about the quality of mortgage-backed securities that it sold to Southwest Corporate Federal Credit Union and Members United Corporated Federal Credit Union. A judge had approved the $29M settlement last month. The additional $21.3M is prejudgment interest. Legal fees have yet to be determined. NCUA, in its role as liquidating agent for the two now defunct credit unions, had sued Credit Suisse in 2013.

However, Credit Suisse is not the only firm that NCUA has held accountable for selling bad MBS to credit unions. Barclays (BARC) settled for $325M with NCUA, as did Morgan Stanley (MS) for $225M. In February, a UBS AG (UB) unit consented to pay over $33M to resolve MBS claims brought by NCUA. That amount, with prejudgment interest, is now $69.8M. Legal fees, for which UBS is also liable, have yet to be determined.

Credit Suisse Loan Buyback Suit Filed On Time, Judge Says, Law360, April 14, 2016

U.S. Bank National Assoc. v. DLJ Mortgage Capital, Inc., New York Law Journal, April 5, 2016

Credit Suisse Will Pay NCUA $50.3 Million, NCUA, April 12, 2016

UBS Will Pay NCUA $69.8 Million, NCUA, April 15, 2016