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.
This is one of the many cases that I've been watching and covering where insurers have used statistical sampling to show that guarantors were fraudulently induced to either purchase or write guarantees on structured products.
In the instant case Syncora (at the time XL Capital - remember them?) had written a wrapper on a $666 million (ain't that a funny number?) deal comprised of loans that later went bad. The lawsuit was filed on the basis that by statistical sampling Syncora alleged that 85% of the loans breached representations and warranties. That is, it is alleged that EMC stuffed used dog food in the box and claimed it was chocolate.
I expect this decision will be appealed, but when you start winning summary judgments there's reason, if you're on the other side of the table, to be rather concerned about the path the litigation is likely to take from here on out.
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