Crime Notes: NY Sues Major Banks Over Mortgage Registry, Goldman Faces Class Action

NY AG Takes on Major Banks

New York Attorney General Eric Schneiderman has accused three major banks of fraudulently using an electronic mortgage database to avoid the need for recording mortgage transfers.

Bank of America (NYSE:BAC), Wells Fargo (NYSE:WFC), and JPMorgan (NYSE:JPM) allegedly used a system that tracks mortgage ownership — the Mortgage Electronic Registration Systems, or MERS — in order to “avoid the need to publicly record mortgage transfers and facilitate the rapid sale and securitization of mortgages en masse,” said Schneiderman.

The lawsuit also names the registry operator, MERSCORP Inc. of Virginia, for creating the electronic mortgage registry that Schneiderman said eliminated homeowners’ ability to track property transfers through traditional public records, adding that the data stored in the system is plagued by inaccuracies.

The MERS system is “an end-run around the property recording system” created and used by banks to┬árapidly package and sell mortgages as securities without recording each transaction in county records offices, said Schneiderman.

“Once the mortgages went sour, these same banks brought foreclosure proceedings…based on deceptive and fraudulent court submissions, seeking to take homes away from people with little regard for basic legal requirements or the rule of law.”

Among the alleged complaints, homeowners are said to have had trouble responding to foreclosure actions and mortgage inaccuracies because MERS makes it difficult to find out who owns the mortgages.

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Federal Judge Allows Class-Action Suit Against Goldman Sachs

A federal judge has ordered Goldman Sachs (NYSE:GS) to face a class-action lawsuit accusing it of defrauding investors about a 2006 offering of securities backed by risky mortgage loans from the now-defunct New Century Financial Corp., which went bankrupt in 2007.

U.S. District Judge Harold Baer certified in Manhattan a class-action suit by investors led by the Public Employees’ Retirement System of Mississippi.

The plaintiffs claim they lost money in the GSAMP Trust 2006-S2, an offering of certificates backed by second-lien home loans valued at $698 million. The Mississippi fund claimed the GSAMP offering documents were false and misleading, and that Goldman’s disclosures failed to reveal how New Century had ignored its own underwriting standards and used inflated appraisals.

Goldman is being blamed for not having done its due diligence and uncovering these problems when it bought New Century’s loans and packaged them into securities.

Goldman had sought to force investors to bring their cases individually, as class certification allows them to pool resources, which can cut costs, and can lead to larger recoveries than if investors are forced to pursue separate suits.

Goldman claimed that giving plaintiffs class-action status was inappropriate given the wide range of certificates offered and the differences among the “highly sophisticated institutional investors” that bought the debt. Goldman also said some investors may have had “storm warnings” about New Century’s practices.

Baer rejected the defense, and faulted Goldman for “creative cutting and pasting” of a 200-page deposition in an effort to make it appear as though the Mississippi fund was on notice of problems.

To contact the reporter on this story: Emily Knapp at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com