Eric Schneiderman, the New York State Attorney General, has made it abundantly clear that the lawsuit he filed against JPMorgan Chase over mortgage-backed securities issued by Bear Stearns is just the beginning. There will be more lawsuits coming.
So it’s fair to start speculating about which bank will be the next target for Schneiderman and the Residential Mortgage-Backed Securities Working Group. (Read more: Expect More Lawsuits Against Financial Firms: NY AG)
The best place to look for hints about who might be next is in the complaint against JPMorgan . What seems very clear to me is that Schneiderman’s suit is built off the lawsuits filed last year by the Federal Housing Finance Agency.
Schneiderman’s suit cites the Office of Comptroller of the Currency’s “Ten Worst of the Ten Worst” study of the worst mortgage originators in the worst cities—just like the FHFA did.
Schneiderman says JPMorgan ignored the work of third-party due diligence companies, which was also a claim that the FHFA made. And Schneiderman actually cites the FHFA’s own sampling of mortgages to determine the quality of the pools—or, rather, the lack of quality.
After the FHFA lawsuits were filed last year, Felix Salmon and Nick Rizzo at Reuters scored them and produced a half-joking league table of banks. JPMorgan topped the list.
But that was actually a bit misleading. The reason JPMorgan beat out Bank of America is that the claims against Bank of America, Countrywide and Merrill Lynch were broken into three different lawsuits. Combined Bank of America would have taken the “lead” in the table.
I would not expect all 17 of the banks sued by the FHFA to also be hit with Schneiderman lawsuits. Most likely, only the worst of the bunch will be sued. One way of determining who “the worst” might be would be to draw up a list of which firms the FHFA sued for punitive damages.
Here’s that list: JPMorgan, Bank of America, Goldman Sachs, Morgan Stanley, Ally, and General Electric.*
(We can probably take Ally off Schneiderman's target list, since its mortgage unit is in bankruptcy.)
Draw your own conclusions.
- by CNBC.com senior editor John Carney
* GE maintains a minority ownership in CNBC's corporate parent, NBC Universal.
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