…While cases like these have proliferated against bank underwriters since 2008, relatively few big-dollar disputes have gone to trial, in part because of the complexity and cost of cross-checking information in loan pools of hundreds of thousands of mortgages against external sources. Other courts have used statistical sampling techniques to produce rough estimates of investor losses. Judge Chapman required a loan-by-loan review that she said failed to turn up actionable breaches “for the vast majority of loans at issue…The trustees said almost 55,000 of the 72,500 loans offered up for trial had inaccurate information about borrowers’ income, debt or occupancy based on discrepancies with tax returns, bankruptcy filings, credit reports and property records…But the judge said she doubted these types of records were always reliable or necessarily showed the loan applications were false. She also criticized the trustees for running what she said was a biased review process and for failing to prove that the value of the underlying loans had been depressed…U.S. Bankruptcy Judge Shelley C. Chapman’s decision marks a loss for investors, mostly hedge funds, which said their claims were worth $11.4 billion, and a win for Lehman’s bankruptcy administrators, who had proposed the $2.4 billion figure. She fixed the investors’ claim after a 22-day trial surrounding 72,500 home loans from before the 2008 financial crisis that bond trustees said were rife with misstatements about the borrowers’ income, their debts and their places of residence…Judge Chapman’s ruling doesn’t allow investors to collect on the entirety of their $2.4 billion claim; they will be paid out on equal footing with other Lehman unsecured creditors who also haven’t been fully repaid.”,  Andrew Scurria, “Soured Lehman Claims Valued at $2.4 billion”, The Wall Street Journal, March 8, 2018

“I almost missed this tiny March 2018, Wall Street Journal article. It is horribly written and hides the key point (by regurgitating plaintiff allegations that the federal judge dismissed as biased and unproven at trial), but the key facts are here and support everything I have been saying on this blog. Essentially, that the allegations of rampant crisis-era mortgage fraud (by the Obama government folks at the DOJ, FDIC, and SEC and private plaintiffs such as this case) being the cause of massive MBS investor losses and the financial crisis, were never proven by anyone and in fact, disproven in this significant and highly representative industry case. This article notes (as I have several times on this blog) that almost none of these civil cases (by either the government or private plaintiffs), have gone to trial and so almost none of these cases involve any facts, determined in a court of law. And as the article notes, “Judge Chapman required a loan-by-loan review that she said failed to turn up actionable breaches ‘for the vast majority of loans at issue”…the judge said she doubted these types of records were always reliable or necessarily showed the loan applications were false. She also criticized the trustees for running what she said was a biased review process and for failing to prove the value of the underlying loans had been depressed (by the plaintiffs’ allegation).” Wow! This federal judge’s ruling (which is final and may not be appealed) powerfully refutes the rampant crisis era mortgage fraud allegations made by the Obama government and other private plaintiffs (who wanted to blame their risk-taking and losses on others). It adds huge support to my blog’s key points about crisis era mortgages, but unfortunately comes nearly ten years after the fact and far too late to help anyone defend themselves or their institution.”, Mike Perry, former Chairman and CEO, IndyMac Bank

https://www.wsj.com/articles/soured-lehman-mortgage-claims-valued-at-2-4-billion-1520544036?mod=e2tw

BANKRUPTCY

Soured Lehman Mortgage Claims Valued at $2.4 Billion

Bondholders had valued claims against Lehman at $11.4 billion

The Lehman Brothers building in September 2008. A bankruptcy judge ruled Thursday the bank caused $2.4 billion in damages to investors holding securities backed by shaky home mortgages, ending one of the last remaining disputes in a nearly decadelong liquidation. PHOTO: JOSHUA LOTT/REUTERS

By  Andrew Scurria

Lehman Brothers Holdings Inc. caused $2.4 billion in damages to investors holding securities backed by shaky home mortgages, a New York bankruptcy judge ruled Thursday, ending one of the last remaining disputes in the defunct bank’s nearly decadelong liquidation.

U.S. Bankruptcy Judge Shelley C. Chapman’s decision marks a loss for investors, mostly hedge funds, which said their claims were worth $11.4 billion, and a win for Lehman’s bankruptcy administrators, who had proposed the $2.4 billion figure.

She fixed the investors’ claim after a 22-day trial surrounding 72,500 home loans from before the 2008 financial crisis that bond trustees said were rife with misstatements about the borrowers’ income, their debts and their places of residence.

Todd Cosenza, an attorney for the Lehman administrators, said “we are gratified with the court’s well-reasoned and thorough decision, which we believe reflects a fair outcome for all creditors.”

An attorney for the trustees declined to comment.

Neither side can appeal the decision under a trial framework they worked out last year to resolve Lehman’s liability for lapses in underwriting standards on mortgages that it bundled and securitized for resale.

Trustees acting on behalf of those investors had brought claims against the Lehman bankruptcy estate for breaches of representations and warranties in which the bank vouched for the accuracy and quality of the underlying loan documents. The trustees blamed losses in the mortgage-backed securities on so-called liar loans in which borrowers were largely taken at their word.

While cases like these have proliferated against bank underwriters since 2008, relatively few big-dollar disputes have gone to trial, in part because of the complexity and cost of cross-checking information in loan pools of hundreds of thousands of mortgages against external sources.

Other courts have used statistical sampling techniques to produce rough estimates of investor losses. Judge Chapman required a loan-by-loan review that she said failed to turn up actionable breaches “for the vast majority of loans at issue.”

The trustees’ case against Lehman underscored the difficulty in determining whether borrowers were truthful when they took out home loans. Court records show that one applicant, a Stanley Steemer driver, signed loan papers in 2006 saying he earned $6,500 a month. Tax records later revealed his earnings were less than half that, according to the trustees.

Another mortgage-loan applicant purportedly listed a gym membership among his debts but didn’t include two other home mortgages, totaling $205,900. A waitress in New Jersey pledged to move within 60 days to Las Vegas as a condition of her mortgage but filed court papers in a personal bankruptcy case years later suggesting she never did, documents say.

The trustees said almost 55,000 of the 72,500 loans offered up for trial had inaccurate information about borrowers’ income, debt or occupancy based on discrepancies with tax returns, bankruptcy filings, credit reports and property records.

But the judge said she doubted these types of records were always reliable or necessarily showed the loan applications were false. She also criticized the trustees for running what she said was a biased review process and for failing to prove that the value of the underlying loans had been depressed.

Judge Chapman’s ruling doesn’t allow investors to collect on the entirety of their $2.4 billion claim; they will be paid out on equal footing with other Lehman unsecured creditors who also haven’t been fully repaid.

The dispute has been marked by tensions between institutional investors who favored a settlement with Lehman and hedge funds which argued for a higher damages figure and pressured the trustees, who were in charge of the litigation, to go to trial.

BlackRock Financial Management Co., Pacific Investment Management Co. and Goldman Sachs Asset Management LP supported a $2.4 billion deal in settlement talks with the Lehman administrators, but hedge funds including Tilden Park Capital Management LP and BlueMountain Capital Management LLC saw that as a lowballed figure.

Lehman’s bankruptcy proceedings have paid out roughly $122 billion to creditors since it failed in 2008. The Lehman estate still has billions in remaining investments to unwind and is expected to exist in some form for several more years.

Unsecured creditors, who were estimated to receive about 21 cents on the dollar when Lehman’s liquidation plan went into effect in 2012, have now recovered nearly 44 cents and are in line for more. Bankruptcy administrators had set aside reserves to cover potential judgments that can now be distributed. The largest variable in the wind-down is now a $1 billion derivatives trial with Credit Suisse AG that is scheduled to begin in October.