Goldman Sachs Sued Over MBS Deals (a pension fund administered by NECA-IBEW)

[Omaha Steve]

http://www.housingwire.com/2008/12/12/goldman-sachs-sued-over-mbs-deals/

By PAUL JACKSON
December 12, 2008

The mortgage litigation machine is now turning its attention towards RMBS issuers as investors allege fraud and misrepresentation by firms that sold off loans into securitization trusts, with a new putative class-action suit filed Thursday in New York against Goldman Sachs Group Inc. (GS: 80.73 +0.85%) and some of the firm’s individual directors. The case, filed in Southern District Court in New York on Dec. 11 by the San Diego-based law firm of Coughlin Stoia Geller Rudman & Robbins LLP, a well-known securities litigation firm, argues that Goldman made false statements or omitted key information regarding the nature of the mortgages it sold into 17 different trusts during 2007.

The lead plaintiff in the case is a pension fund administered by NECA-IBEW, an electrician’s labor union that purchased securities in the deals in question, and has since seen the value of investments plummet.

The case underscores the potential for growing litigation that centers on the role of issuers and disclosures made to investors, regarding loans that were often originated by monoline mortgage bankers and commercial banks and then sold to the issuing party for securitization; it also underscores the often complex relationships that exist between mortgage originators and participants in the secondary market.

In the Goldman case, NECA-IBEW alleges that Goldman misled investors on the underwriting standards used by various originators, including — who else? — Countrywide Financial; other claims center on the use of inflated appraisals by originating entities for the trusts. Many of the loans in the trusts named in the lawsuit are of the reduced-doc, no-doc, stated-income variety, which NECA-IBEW says are rife with fraud.

“The lenders or lenders’ agents knew that the borrowers either could not provide the required documentation or the borrowers refused to provide it,” the complaint read in part.

“The underwriting, quality control, and due diligence practices and policies utilized in connection with the approval and funding of the mortgage loans were so weak that borrowers were being extended loans based on stated income … with purported income amounts that could not possibly be reconciled with the jobs claims on the loan application or through a check of free “online” salary databases.”

Read the full complaint.

FULL story at link.