Legal News

Subprime Legal: Asset-Backed Deal Spotted and an I-Bank as Victim

By Jamie Heller

For the litigators busy suing over subprime, or corporate types waiting – praying — for that market to come back, a few news tidbits.

Securitization Spotted: The Journal’s Serena Ng reports today that the business of securitization – in which banks create securities out of big pools of loans – could be staging a modest comeback. The sudden slump in this kind of highly-leveraged legal work is what helped account for the layoffs at places like Thacher Proffitt and Cadwalader. But this week, GMAC bundled about $1.56 billion in auto loans into securities. That deal was part of about $12 billion in issuance of asset-backed securities in the last two weeks, roughly double the pace from earlier this year, according to BofA. Nowhere near where it once was, but a dab of sunshine for lawyers who’ve call this work a living.

• I-Bank as Victim?: The SEC, Cuomo’s office and others have been scrutinizing Wall Street as perpetrator of subprime woes. But a case this week out of the federal prosecutors’ office in Brooklyn suggests I-banks can be victims, too. According to Chad Bray at the DJ Wires, a former principal at a New York City lender was charged with fraud for an alleged scheme to sell to investment bank Credit Suisse nonperforming mortgage loans using falsified loan histories. CS purchased 12 of those nonperforming loans, prosecutors said.
• ARS Payout: For the newly minted auction-rate securities hounds, here’s a development: UBS earlier this week agreed to fork over some cash, about $35 million, to Massachusetts cities and other government entites. These weren’t ARS issuers. They were buyers. But it turns out that under state law, auction-rate securities were not a kosher purchase for them. For its part, UBS seemed to try to manage expectations that more such payments would not be forthcoming. “The reasons supporting this agreement apply only to the circumstances of this specific case under Massachusetts law,” the company said. Here’s the story.

Full post as published by Law Blog - WSJ.com on May 09, 2008 (boomark / email).