From the Financial Times:
Credit Suisse has filed lawsuits against at least three US subprime mortgage lenders, marking an escalation of efforts by Wall Street banks to use legal action to purge themselves of bad housing loans.
DLJ Mortgage Capital, a unit of Credit Suisse, is separately suing the three mortgage companies for more than $30m, claiming the lenders failed to honour obligations relating to loans that it purchased from them. EMC Mortgage Corp, a unit of Bear Stearns, has filed at least one $70m lawsuit against a lender. Other suits are expected.
The legal action comes as Wall Street seeks to limit damage from the subprime collapse. Banks including Credit Suisse, Bear Stearns and Lehman Brothers helped fuel the boom in subprime lending, providing billions of dollars to lenders as they bought mortgage loans to sell to yield-hungry investors.
In two of its claims, DLJ Mortgage Capital is seeking to force Sunset Direct Lending and Infinity Home Mortgages to buy back mortgage loans that ran into payment problems soon after DLJ bought the loans.
In one instance, cited in the case against Infinity, DLJ claims it bought four mortgage loans totalling $838,000 made to an individual borrower for three properties on the same street in Irvington, New Jersey. DLJ bought the loans from Infinity between March and April 2006, and claims that the individual failed to make payments on three of the mortgages in May.
Citing contractual agreements that require loan repurchases after such “early payment defaults”, DLJ is seeking almost $24m of buy backs from Sunset and $3m from Infinity. Separately, DLJ is suing NetBank for $4m of payments relating to loans that its subsidiaries were servicing for DLJ.
In an interview, Sunset CEO Bob Howard said he would also dispute DLJ’s claims, but said early payment defaults were a problem. “I can’t believe there is a soul that has been dealing in mortgage sales to Wall Street that hasn’t run into early payment default problems,” Mr Howard said.
He added that Sunset was no longer making new loans. He said employees had been given leave until the end of March, but that he had plans to reopen the firm under a new name in April.