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FDIC Sues Banks over Securitization Appraisals

americanbanker.comMay 21, 2012

The Federal Deposit Insurance Corp. has sued Bank of America (BAC), Citigroup (NYSE: C), JPMorgan Chase (JPM) and other banks for a cumulative $92 million in damages on mortgage-backed securities, alleging that shoddy appraisals and other underwriting defects tainted their sale.

The litigation stems from the FDIC's role as receiver for Illinois' Strategic Capital Bank and Citizens National Bank, both of which failed in 2009.

As the receiver for the failed banks, the FDIC has filed three suits to recover the banks' losses on its own behalf. The suits, which were brought by Grais & Ellsworth in California and New York federal courts, closely resemble those filed by the firm for other clients. But the FDIC's willingness to act as a plaintiff in this and similar cases lends credibility to the attorneys' legal strategy.

The FDIC's suits allege that Countrywide and the banks that issued the security delivered false assurances about the quality of the portfolio's underwriting. More than half the loans included in three securitizations failed to meet quality benchmarks laid out by the issuer, the suit says.

"Defendants omitted to state that … the originators were disregarding those underwriting standards," the FDIC claims say, and that they "were failing frequently to follow quality-assurance practices necessary to detect and prevent fraud intended to circumvent their underwriting standards."

Much of the evidence cited in the suit is derived from retroactive appraisals to determine loan-to-value ratios, a methodology that banks have bitterly contested. Using such a modeling technique on one securitization, the suit says, increased the LTV from 72% to 90%. Loans were nearly six times as likely to be overvalued as undervalued, the suit says.


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CFLA was founded by the Nation's Leading Foreclosure Defense Attorneys back in 2007 to serve the Foreclosure Defense Industry and fight pervasive Bank Fraud. Since opening our virtual doors, CFLA has rapidly expanded to become the premier online legal destination for small businesses and consumers. But as the company continues to grow, we're careful to hold true to our original vision. For us, putting the law within reach of millions of people is more than just a novel idea—it's the founding principle, just ask Andrew P. Lehman, J.D.. With convenient locations in Houston and Los Angeles, you can contact Our National Account Specialist and General Manager / Member Damion W. Emholtz at 888-758-2352 for a free Mortgage Fraud Analysis or to obtain samples of work product, including cutting edge Bloomberg Securitization Audits, Litigation Support, Quiet Title Packages, and for more information about our Nationally Accredited and U.S. Department of Education Approved "Mortgage Securitization Analyst Training Certification" Classes (3 days) 24 hours for approved CLE & MCLE Credit (Now Available Online).

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