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Lehman Brothers Sues Three Financial Firms Over Soured Mortgage Loans

Lehman Brothers Holdings filed a complaint against three financial institutions in connection with the bundles of soured mortgage loans and argued that the claims worth hundreds of millions of dollars were “grossly exaggerated and baseless.”

In a filing with the U.S. Bankruptcy Court in Manhattan, Lehman Brothers requested the court to reject the claims against it by Syncora Holdings, U.S. Bancorp and GreenPoint Mortgage Holding, the long-dormant financial services firm owned by Capital One Financial.

Lehman Brothers Sues Three Financial Firms Over Soured Mortgage Loans

Lehman Brothers said GreenPoint should be liable for the claims

Lehman Brothers argued that the claims of the U.S. Bank should not be allowed by the court because its argument is with GreenPoint. On the other hand, Lehman Brothers also argued that Syncora’s claim was a duplicate of the U.S. Bank claim.

U.S. Bank and Syncora are suing GreenPoint Mortgage Holding in a separate proceeding over the same soured mortgage loans. Lehman Brothers is requesting Judge Shelley Chapman to declare that the claims against it should be estimated zero and GreenPoint Mortgage Holding is liable for the claims.

“These claims, which Lehman has been trying to resolve over the past two years, continue to impede the administration of the plan and the orderly distribution of assets,” said Lehman Brothers in its filing with the courts.

Lehman Brothers and its subsidiaries already returned approximately $100 billion to creditors.

Lehman Brothers bought mortgage loans from GreenPoint

Lehman Brothers bought mortgage loans from GreenPoint Mortgage Holding in a structured finance transaction, which is the center of the case. Through a process of financial engineering, GreenPoint transferred the mortgage loans to a trust—GreenPoint Mortgage Funding Trust 2006-HEI, which issued notes backed by the loan.

Syncora sold insurance to the GreenPoint Mortgage Funding Trust 2006-HE1, guaranteed payments of principal and interest to investors. U.S. Bank is the trustee of the trust. During the latter part of the housing bubble, many of the mortgage loans were defaulted, which made Syncora responsible for payments to investors.

Lehman Brothers indicated in its court filing that the trust lost approximately $922 million on the mortgage loans. Mortgage holders already made $350 million in payments, which were not taken into account. Lehman Brothers said the actual losses to noteholders and Syncora “appear to be much smaller.”

Lehman Brothers was the fourth-largest investment bank in the United States before declaring bankruptcy in September 2008. The investment bank filed for Chapter 11 bankruptcy protection after suffering a massive exit of clients, devaluation of assets, and losses in stock value.