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FHFA (Government Sponsored Enterprises GSE) as reasonable investors Vs. Merrill Lynch [Merrill Lynch & Co., Inc. (“Merrill Lynch & Co.”), Merrill Lynch, Pierce, Fenner & Smith Inc. (“Merrill Lynch, Pierce, Fenner & Smith”), Merrill Lynch Mortgage Lending, Inc. (“Merrill Lynch Mortgage Lending”), Merrill Lynch Mortgage Capital Inc. (“Merrill Lynch Mortgage Capital”), First Franklin Financial Corp. (“First Franklin Financial”), Merrill Lynch Mortgage Investors, Inc. (“Merrill Lynch Mortgage Investors”), Merrill Lynch Government Securities, Inc. (“Merrill Lynch Government Securities”)

FHFA (Government Sponsored Enterprises GSE) as reasonable investors Vs. Merrill Lynch [Merrill Lynch & Co., Inc. (“Merrill Lynch & Co.”), Merrill Lynch, Pierce, Fenner & Smith Inc. (“Merrill Lynch, Pierce, Fenner & Smith”), Merrill Lynch Mortgage Lending, Inc. (“Merrill Lynch Mortgage Lending”), Merrill Lynch Mortgage Capital Inc. (“Merrill Lynch Mortgage Capital”), First Franklin Financial Corp. (“First Franklin Financial”), Merrill Lynch Mortgage Investors, Inc. (“Merrill Lynch Mortgage Investors”), Merrill Lynch Government Securities, Inc. (“Merrill Lynch Government Securities”)

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Published by Mary Cochrane

GSE's as investors, class of consumer as reasonable persons & harms inducing the GSEs to purchase the GSE Certificates

Plaintiff “Government Sponsored Enterprises” Federal Housing Finance Agency (“FHFA”), as conservator of The Federal National Mortgage Association (“Fannie Mae”) and The Federal Home Loan Mortgage Corporation (“Freddie Mac”), by its attorneys, Quinn Emanuel Urquhart & Sullivan, LLP, for its Complaint herein against Merrill Lynch. securities were sold pursuant to registration statements, including prospectuses and prospectus supplements that formed part of those registration statements, which contained materially false or misleading statements and omissions. Defendants falsely represented that the underlying mortgage loans complied with certain underwriting guidelines and standards, including representations that significantly overstated the ability of the borrowers to repay their mortgage loans



GSE's as investors, class of consumer as reasonable persons & harms inducing the GSEs to purchase the GSE Certificates

Plaintiff “Government Sponsored Enterprises” Federal Housing Finance Agency (“FHFA”), as conservator of The Federal National Mortgage Association (“Fannie Mae”) and The Federal Home Loan Mortgage Corporation (“Freddie Mac”), by its attorneys, Quinn Emanuel Urquhart & Sullivan, LLP, for its Complaint herein against Merrill Lynch. securities were sold pursuant to registration statements, including prospectuses and prospectus supplements that formed part of those registration statements, which contained materially false or misleading statements and omissions. Defendants falsely represented that the underlying mortgage loans complied with certain underwriting guidelines and standards, including representations that significantly overstated the ability of the borrowers to repay their mortgage loans


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Published by: Mary Cochrane on Nov 22, 2012
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05/13/2014

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 UNITED STATES DISTRICT COURTSOUTHERN DISTRICT OF NEW YORK FEDERAL HOUSING FINANCE AGENCY,AS CONSERVATOR FOR THE FEDERAL NATIONAL MORTGAGE ASSOCIATIONAND THE FEDERAL HOME LOANMORTGAGE CORPORATION,Plaintiff,-against-MERRILL LYNCH & CO., INC.; MERRILLLYNCH, PIERCE, FENNER & SMITH INC.;MERRILL LYNCH MORTGAGELENDING, INC.; MERRILL LYNCHMORTGAGE CAPITAL INC.; FIRSTFRANKLIN FINANCIAL CORP.; MERRILLLYNCH MORTGAGE INVESTORS, INC.;MERRILL LYNCH GOVERNMENTSECURITIES, INC.; MATTHEW WHALEN;BRIAN T. SULLIVAN; MICHAEL M.MCGOVERN; DONALD J. PUGLISI; PAULPARK; and DONALD C. HAN,Defendants.
___ CIV. ___ (___)COMPLAINTJURY TRIAL DEMANDED
 
 iTABLE OF CONTENTS NATURE OF ACTION ...................................................................................................................1
 
PARTIES .........................................................................................................................................8
 
The Plaintiff and the GSEs
...................................................................................................8
 
The Defendants
....................................................................................................................9
 
The Non-Party Originators
................................................................................................12
 
JURISDICTION AND VENUE ....................................................................................................12
 
FACTUAL ALLEGATIONS ........................................................................................................13
 
I.
 
THE SECURITIZATIONS ................................................................................................13
 
A.
 
Residential Mortgage-Backed Securitizations In General .....................................13
 
B.
 
The Securitizations At Issue In This Case .............................................................15
 
C.
 
The Securitization Process .....................................................................................22
 
1.
 
Merrill Lynch Mortgage Lending, Merrill Lynch MortgageCapital, and First Franklin Financial Grouped Mortgage Loans inSpecial Purpose Trusts ...............................................................................22
 
2.
 
The Trusts Issue Securities Backed by the Loans ......................................23
 
II.
 
THE DEFENDANTS’ PARTICIPATION IN THE SECURITIZATIONPROCESS ..........................................................................................................................30
 
A.
 
The Role of Each of the Defendants ......................................................................30
 
1.
 
First Franklin Financial ..............................................................................31
 
2.
 
Merrill Lynch Mortgage Capital ................................................................32
 
3.
 
Merrill Lynch Mortgage Lending ..............................................................33
 
4.
 
Merrill Lynch Mortgage Investors .............................................................34
 
5.
 
Merrill Lynch, Pierce, Fenner & Smith .....................................................34
 
6.
 
Merrill Lynch Government Securities .......................................................35
 
7.
 
Merrill Lynch & Co. ..................................................................................35
 
 
 ii8.
 
The Individual Defendants .........................................................................36
 
B.
 
Defendant’s Failure To Conduct Proper Due Diligence ........................................38
 
III.
 
THE REGISTRATION STATEMENTS AND THE PROSPECTUSSUPPLEMENTS................................................................................................................41
 
A.
 
Compliance With Underwriting Guidelines ..........................................................41
 
B.
 
Statements Regarding Occupancy Status of Borrower ..........................................44
 
C.
 
Statements Regarding Loan to Value Ratios .........................................................48
 
D.
 
Statements Regarding Credit Ratings ....................................................................52
 
IV.
 
FALSITY OF STATEMENTS IN THE REGISTRATION STATEMENTS ANDPROSPECTUS SUPPLEMENTS ......................................................................................57
 
A.
 
The Statistical Data Provided in the Prospectus Supplements ConcerningOwner Occupancy and LTV Ratios Was Materially False ....................................57
 
1.
 
Owner Occupancy Data Was Materially False ..........................................57
 
2.
 
Loan to Value Data Was Materially False .................................................61
 
B.
 
The Originators of the Underlying Mortgage Loans SystematicallyDisregarded Their Underwriting Guidelines .........................................................66
 
1.
 
Government Investigations Have Confirmed That the Originatorsof the Loans in the Securitizations Systematically Failed to Adhereto Their Underwriting Guidelines ..............................................................67
 
2.
 
The Collapse of the Certificates’ Credit Ratings Further Indicatesthat the Mortgage Loans were not Originated in Adherence to theStated Underwriting Guidelines .................................................................74
 
3.
 
The Surge in Mortgage Delinquency and Default Further Demonstrates that the Mortgage Loans Were Not Originated inAdherence to the Stated Underwriting Guidelines ....................................77
 
V.
 
MERRILL LYNCH KNEW THAT ITS REPRESENTATIONS WERE FALSE ............80
 
A.
 
Evidence Regarding Merrill Lynch’s Due Diligence ............................................81
 
1.
 
Merrill Lynch’s Due Diligence Benefitted From a Direct WindowInto the Originators’ Practices ...................................................................81
 
2.
 
Merrill Lynch Mortgage Lending, Merrill Lynch MortgageCapital, First Franklin Financial, Merrill Lynch Mortgage

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