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JPMorgan Loses Court Ruling Over Loan Putbacks

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JPMorgan Chase & Co (JPM.N) could be forced to repurchase thousands of home equity loans, after a judge ruled in favor of a bond insurer that argued it could build its case based on a sampling of loans.

The ruling against EMC Mortgage Corp, once a unit of Bear Stearns Cos, comes amid many lawsuits seeking to force banks to buy back tens of billions of dollars of mortgage and other home loans that went sour. JPMorgan bought Bear Stearns in 2008.

Syncora Guarantee Inc now can pursue claims concerning the entire 9,871-loan pool that backed a securities issue, according to the ruling late Friday from U.S. District Judge Paul Crotty in Manhattan.

The ruling lowers the hurdle for insurers trying to prove they were deceived by banks, and increases the potential that banks could be forced to buy back more loans.

Crotty rejected EMC's claim that Syncora be forced to show breaches related to individual loans.

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We're going to be following it for a long time as it makes it's way through the appellate courts.

I wonder just how many individual loans of this portfolio are actually under performing or nonperforming. HELOC's are pretty much extremely high risk unsecured lines of credit with almost no downside to the borrower when the real estate market goes South. By definition, HELOC's are secured by equity. If the market as a whole loses value, that equity is wiped away. The real estate markets have historically gone up and down, so it's not rocket science to understand that these types of loans are extremely risky under any circumstances. A 10th grade student taking basic finance could have told them that.

My point being that Syncora was a willing participant in the go-go days. Their suit contends that they were misled by EMC as to the value and quality of the MBS they were insuring. Moreover Syncora evidently had no internal due diligence procedures to assess risk. But they damn sure cashed the check paid to them by EMC knowing full well that their insurance bond would make the underlying MBS "investment grade". Syncora was a criminal co-conspirator and accessory to fraud from day one, and now they seek to be made whole by the courts.

I find this whole charade laughable on it's face.