Morgan Stanley asked a judge to dismiss a suit filed by MetLife Inc. over mortgage-backed securities, saying the insurer knew the U.S. housing market was starting to deteriorate before it bought most of them.
MetLife had invested about $56.5 billion in residential mortgage-backed securities before 2008, making it a “sophisticated investor,” and the insurer that same year bought the mortgage unit of First Horizon National Corp., which had originated loans for securities in the case, lawyers for Morgan Stanley said today during a hearing before New York State Supreme Court Justice Eileen Bransten in Manhattan.
The New York-based insurer knew that underwriting standards for mortgages had started to deteriorate and had already begun to reduce its exposure to mortgage-backed securities by mid-2007, before it made 36 of the 52 purchases at issue in the case, Morgan Stanley attorneys said in a court filing.
“Not only did MetLife invest more than $50 billion in mortgage-backed securities, one of their affiliates originated the mortgages that are alleged to be fraudulent in this case,” James P. Rouhandeh of Davis Polk & Wardwell LLP, an attorney for New York-based Morgan Stanley, said during today’s hearing.
MetLife, the largest U.S. life insurer, sued Morgan Stanley in April, accusing the investment bank of fraud and other claims involving $757 million in residential mortgage-backed securities purchased in 2006 and 2007.
MetLife said Morgan Stanley told it that the loans backing the securities were originated based on “specific underwriting guidelines” and collateralized by properties that had been “accurately appraised.”
The case is Metropolitan Life Insurance Co. v. Morgan Stanley, 651360/2012, New York State Supreme Court, New York County (Manhattan).