Recent Ruling In Bond Insurer's Suit Could Force Chase To Eat Million$ In Crappy HELOCs; Court Rejects "Onesies & Twosies" Approach To Remedy Breaches

Reuters reports:

• JPMorgan Chase & Co could be forced to repurchase thousands of home equity loans, after a judge ruled in favor of a bond insurer that argued it could build its case based on a sampling of loans.
• The ruling against EMC Mortgage Corp, once a unit of Bear Stearns Cos, comes amid many lawsuits seeking to force banks to buy back tens of billions of dollars of mortgage and other home loans that went sour. JPMorgan bought Bear Stearns in 2008.
• Syncora Guarantee Inc now can pursue claims concerning the entire 9,871-loan pool that backed a securities issue, according to the ruling late Friday from U.S. District Judge Paul Crotty in Manhattan.
• The ruling lowers the hurdle for insurers trying to prove they were deceived by banks, and increases the potential that banks could be forced to buy back more loans. Crotty rejected EMC's claim that Syncora be forced to show breaches related to individual loans.(1) Syncora had insured the interest and principal payments on part of a $666 million mortgage bond backed by the loans.

For more, see JPMorgan loses court ruling over loan putbacks (Syncora can pursue claims based on entire loan pool; Insurer need not show breaches of individual loans).

For the court ruling, see Syncora Guarantee Inc. v. EMC Mortgage Corp., No. 09 Civ. 3106-PAC (USDC, S.D. N.Y. March 25, 2011).

(1) From footnote 4 of the court ruling:

• The repurchase protocol is a low-powered sanction for bad mortgages that slip through the cracks. It is a narrow remedy ("onesies and twosies") that is appropriate for individualized breaches and designed to facilitate an ongoing information exchange among the parties.

  This is not what is alleged here. Here, Syncora alleges massive misleading and disruption of any meaningful change by distorting the truth. The futility of applying an individualized remedy to allegedly widespread misrepresentations is evident in the fact that, of the 1,300 loans actually submitted under the repurchase protocol, EMC has remedied only 20. This .015% success rate does not bode well for the efficiency of employing the repurchase protocol for a generalized claim of breach.

  Accordingly, EMC cannot reasonably expect the Court to examine each of the 9,871 transactions to determine whether there has been a breach, with the sole remedy of putting them back one by one. This transaction was put together in days and months. It is now in its second year of litigation.