September 13, 2019

How the Global Financial Crisis Shaped New York Law

Residential mortgage-backed securities (“RMBS”) and collateralized debt obligations (“CDOs”) became household names during the financial crisis.  More than a decade later, litigation brought in the wake of the financial crisis continues to proliferate in New York state and federal courts. This program will focus on significant developments in New York law that were borne of crisis-related litigation. Over the last decade, trends and significant case law have emerged in connection with these cases.  These trends and this case law have wide application to other financial products, as well as to commercial litigation generally.

Litigation concerning RMBS and CDOs has taken on many forms over the years.  Plaintiffs in these matters have advanced contract and fraud claims, and governmental plaintiffs have taken advantage of statutory authority to pursue alleged wrongdoing by RMBS and CDO originators and sponsors. For example, in RMBS repurchase or “put-back” litigation, plaintiff trustees seek to enforce the contractual repurchase obligations of defendant sponsors and originators for breaches of loan-level representations and warranties.  Most plaintiffs in these actions allege, among other claims, that the origination of the mortgage loans underlying RMBS did not conform to the originator’s underwriting guidelines, had insufficient mitigating or compensating factors to warrant deviations from those guidelines or materially and adversely differ from the representations and warranties made in connection with their securitization.  Relatedly, fraud plaintiffs make similar allegations about the poor quality of the underlying mortgage collateral, and allege that defendants made knowing representations or omissions about those deficiencies.  Federal and state authorities have wielded powers under the Financial Institutions Reform, Recovery, and Enforcement Act (“FIRREA”) and analogous state laws to prosecute wrongdoing by RMBS and CDO originators and sponsors.