This is a securities class action against Home Equity Mortgage Trust; Credit Suisse First Boston Mortgage Securities Corporation; Credit Suisse Group; Moody's Investors Services; The McGraw-Hill Companies, Inc.; DBRS, Inc., among others.
The class action lawsuit alleges violations of Sections 11, 12 and 15 of the Securities Act on behalf of purchasers of Home Equity Mortgage Pass-Through Certificates (the "Certificates" or the "HEMT Certificates") who purchased the Certificates, backed by a pool of primarily fixed-rate subprime second-lien residential mortgage loans, pursuant to or traceable to the $784,000,100 Offering of Series 2006- 5 Pass-Through Certificates on or about October 30, 2006 issued by Defendant Home Equity Mortgage Trust 2006-5 (the "October 2006 Offering").
The Certificates herein are Mortgage Pass-Through Certificates ("PTCs") collateralized by mortgages originated by New Century Mortgage Corporation ("New Century") and DLJ Mortgage Capital, Inc. ("DLJ"), both of which at all relevant times were commercial and residential lenders.
The mortgages and liens on the mortgaged properties constituting the Certificates collateral were to be the principal source by which Certificate purchasers were to obtain repayment of their investment plus interest. The Certificate collateral was purportedly originated by NCM and DLJ pursuant to specific underwriting procedures and guidelines. The Underwriter, a Credit Swiss affiliate, was obligated to conduct meaningful due diligence to ensure that the Registration Statement contained no material misstatements and omissions including as related to the stated manner in which the mortgages had been originated. The Underwriter received massive fees for their work in connection with the Offering.
Based on, inter alia, the Underwriter's due diligence and the representations in the Registration Statement relating the underwriting of the Certificate collateral, rating agencies such as Defendants Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's ("S&P") and DBRS, Inc. ("DBRS") (collectively, the "Ratings Agencies") assigned the Certificates among the highest ratings applicable to such debt issues. At the time of the Offering, the Certificates were issued at approximately par or $1000.00 per Certificate.
Following the issuance of the Certificates, disclosures began to emerge revealing that NCM and DLJ routinely disregarded the underwriting guidelines in originating mortgage collateral. These disclosures were confirmed by substantially higher rates of delinquencies and foreclosures on collateral for such highly-rated debt issues. These disclosures and the poor performance of the collateral caused the Rating Agencies to recognize that the true nature of the collateral had not been properly assessed at the time of the Offering. The Defendant Rating Agencies thus applied new "methodologies" to reflect the actual "aggressive underwriting" which had been used to originate the Certificate collateral.
As a result, the rating agencies dramatically downgraded the Certificates. The revelations regarding the true underwriting practices used to originate the collateral and the true value and quality of the Certificate collateral caused the value of the Certificates to substantially collapse. Plaintiff purchased Certificates at par for $160,000 at the time of the October 2006 Offering, but now, at the commencement of the action herein, they are valued at $59,200 - a 64% decline in value.
Name (Stock Symbol)
McGraw-Hill Companies, Inc., The (MHP)
The McGraw-Hill Companies, Inc. provides information services and products to the financial services, education, and business information markets. It operates under the Standard & Poors brand, which provides investment research, market indices, credit ratings, financial data, and fixed income research and analysis to investors, corporations, governments, financial institutions, investment managers, and advisors.
Moodys Investor Services
Moodys Investor Services, a subsidiary of Moodys Corporation, publishes credit ratings on a range of debt obligations, including various corporate and governmental obligations, structured finance securities, and commercial paper programs, as well as the entities that issue such obligations.
Moodys Corporation (MCO)
Moodys Corporation, through its subsidiaries, provides credit ratings and related research, data, and analytical tools.
Credit Suisse Group AG (CS)
Credit Suisse Group operates as a financial services company worldwide. It operates through three segments: Private Banking, Investment Banking, and Asset Management.
DBRS, Inc. is a rating agency, which rates the credit quality of financial instruments.
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