Large Global Bank Settles Legacy Claims Surrounding Mortgage-Backed Securities

SDNY MBS

On February 2, a major bank agreed to a $500 million settlement to resolve years of litigation surrounding the sale of mortgage securities by Bear Stearns, which the company acquired. In re: Bear Stearns Mortgage Pass-Through Certificates Litigation, No. 1:08-cv-08093-LTS (S.D.N.Y. Feb. 2, 2015). The litigation concerned the sale of $17.58 billion in mortgage securities by Bear Stearns, and alleged that the former investment bank “misrepresented the quality of the loans in the loan pools.”  Although investors did not accuse Bear Stearns of fraud, they alleged that it was strictly liable and negligent for the losses incurred, evidenced by the downgrading of most mortgage certificates from a AAA rating to below investment grade, or “junk” status.  In the settlement, the New York-based institution denied any wrongdoing relating to the mortgage sales of Bear Stearns, which occurred during 2006-2007 prior to acquisition.