Investor Lawyers Blog
A class action lawsuit has been filed against Merrill Lynch and came from the sale of around $16.5 billion in certificates that were derived from pools of securitized home mortgages. Investment attorneys and investors nationwide will be watching Case No. 08-CV-10841, filed against Merrill Lynch. This case obtained class certification in June of this year.
Securities like asset-backed pass-through certificates entitle the holder to income payments that come from mortgage-backed or asset-backed securities and/or pools of loans. The problem with the Merrill Lynch certificates was that the Offering Documents contained statements that were untrue; in addition, some information about the quality of the loans and the collateral’s adequacy within the loan pools was omitted. As a result, investors purchased riskier and lower-quality Certificates than other investments with equal credit ratings. In fact, almost all of the Certificates have now been downgraded by the Rating Agencies to below investment-grade instruments and, as a result, the Certificates are not marketable at the prices paid by investors.
Untrue statements in the Offering Documents had to do with the underwriting standards, maximum loan-to-value ratios, property appraisals, debt-to-income ratios and the Certificate’s ratings. Facts that were omitted included the fact that the loan originators did not follow their stated standards of underwriting, that the Merrill sponsor did not follow its guidelines for loan purchasing for many of the loans, the fact that the value of the underlying properties were overstated and the fact that the Prospectus Supplements ratings were based on relaxed ratings criteria, inaccurate loan information and outdated assumptions.