J.P. Morgan Securities LLC, formerly Bear, Stearns & Co., was accused in a lawsuit by Syncora Guarantee Inc. of making false and misleading statements about loans pooled into a 2007 mortgage-backed securities transaction.
The transaction, known as GreenPoint Mortgage Funding Trust 2007-HE1 and insured by Syncora, resulted in more than $168.6 million in unreimbursed insurance claims after about two years, according to the complaint, filed yesterday in New York state Supreme Court in Manhattan.
Syncora, based in New York, won part of a federal court lawsuit against Bear Stearns affiliate EMC Mortgage Corp. on March 1 in an earlier case involving the transaction. Bear Stearns and EMC are now part of JPMorgan Chase & Co. (JPM)
“Each day the evidence continues to mount of the egregious, widespread fraud perpetrated by Bear Stearns in connection with its mortgage securitization business and the catastrophic consequences for the participants in the securitizations,” Syncora said in its new state court complaint.
Bear Stearns was the underwriter of the transaction while EMC was the sponsor. U.S. District Judge Paul A. Crotty in New York ruled March 25 that Syncora notified EMC of 1,300 mortgages with defects and asked EMC to cure them. EMC agreed to cure only 20 of the mortgages, according to that ruling.
Crotty separately rejected a bid by Syncora to add JPMorgan’s Bear Stearns unit to the federal lawsuit because that request wasn’t filed in a timely fashion, the judge said.
Jennifer Zuccarelli, a spokeswoman for New York-based JPMorgan, declined to comment today.
Bear Stearns securitized 9,871 GreenPoint loans in the transaction with an aggregate principal balance of about $666 million, according to the state court complaint. All except for two of those were second mortgages obtained by borrowers as revolving lines of credit.
A third-party consultant hired to re-underwrite samples of the securitized loans found a 92 percent breach rate, Syncora said in the complaint. That conclusion was based on an analysis of 1,431 mortgage loans included in the transaction involving a combined outstanding principal of $131 million, it said.
The insurer is seeking equitable and punitive damages over claims it was fraudulently induced to participate in the transaction.
The case is Syncora Guarantee Inc. v. J.P. Morgan Securities LLC, 651566/2011, New York state Supreme Court (Manhattan).
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