An affiliate of Ally Financial Inc.’s defunct mortgage company, Residential Capital LLC, sued UBS AG and two other lenders seeking to force them to buy back allegedly defective loans pooled into mortgages bonds.
Residential Funding Co. filed a complaint in New York State Supreme Court in Manhattan against UBS Real Estate Securities Inc., a unit of Zurich-based UBS, Switzerland’s biggest bank. The ResCap affiliate also sued SunTrust Banks Inc.’s SunTrust Mortgage unit and GreenPoint Mortgage Funding Inc., an affiliate of Capital One Financial Corp., in federal court in Manhattan.
The suits accuse the lenders of breach of contract, claiming they sold mortgage loans to Minneapolis-based Residential Funding that didn’t conform with statements about their quality because of missing or inaccurate documentation, fraud by borrowers, or fraudulent or inflated appraisals.
“Had RFC been aware of the defects in defendant’s loans, it would have never acquired them,” Residential Funding said in its complaint.
ResCap is likely to exit bankruptcy this month after winning court approval of a liquidation plan that resolves more than $100 billion in potential lawsuits. Ending the bankruptcy allows Ally to end “substantially all past, present and future mortgage-related claims,” Ally said in a Dec. 11 statement.
Residential Funding bought the mortgages from lenders, then grouped them together with similar loans into a securitization trust, according to the complaint against UBS.
An analyst hired by Residential Funding found that about 43.5 percent of the $460 million in loans it bought from the Swiss bank were “materially defective,” and many defaulted or became delinquent, according to the complaint.
Residential Funding said while it settled many suits and claims over allegedly defective loans in ResCap’s bankruptcy proceedings, it’s litigating others as hundreds of loans in its portfolio continue to lose value.
“Even given the fact that these creditors will only recover a small percentage of their claims under the plan of reorganization, RFC and its affiliates will still ultimately pay out hundreds of millions of dollars stemming from the defective loans,” Residential Funding said.
Residential Funding said it bought at least $3 billion in loans from SunTrust Mortgage and millions of dollars worth of mortgages from GreenPoint, according to the federal suits.
UBS spokeswoman Karina Byrne declined to comment on the suit in an e-mail. Tatiana Stead, a spokeswoman for McLean, Virginia-based Capital One, which closed GreenPoint in 2007, and Sue Mallino, a spokeswoman for Atlanta-based SunTrust, declined to comment.
The state court case is Residential Funding Co. LLC v. UBS Real Estate Securities Inc., 654323/2013, New York State Supreme Court, New York County (Manhattan). The federal cases are Residential Funding Co. LLC v. GreenPoint Mortgage Funding Inc., 13-cv-08937, and Residential Funding Co. LLC v. SunTrust Mortgage Inc., 13-cv-08938, U.S. District Court, Southern District of New York (Manhattan).