Ending months of speculation, U.S. District Judge Jed Rakoff in Manhattan has become the latest judge to side with bond insurers on a crucial issue in a crush of mortgage repurchase suits against banks that issued toxic mortgage-backed securities.
The ruling came in a case Assured Guaranty Ltd. and its lawyers at Susman Godfrey brought against Flagstar Bank over $1 billion in MBS that Assured insured and that tanked in value in the subprime meltdown. In a 24-page summary judgment ruling issued on Tuesday, Rakoff ruled that, to force Flagstar to repurchase (or “put-back”) faulty home loans pooled into residential MBS, Assured doesn’t need to show that misrepresentations by the bank directly caused the loans to default. Instead, Assured just has to show that the bank’s alleged misrepresentations increased its odds of sustaining losses.
