ResCap Liquidating Tr. v. Primary Residential Mortg., Inc. (In re ResCap Liquidating Tr. Litig.)

In Re: ResCap Liquidating Trust Litigation

This document relates to: ResCap Liquidating Trust v. Primary Residential Mortgage, Inc., No. 16-cv-4070

Case No. 13-cv-3451 (SRN/HB)

UNITED STATES DISTRICT COURT DISTRICT OF MINNESOTA

August 14, 2020

FINDINGS OF FACT AND CONCLUSIONS OF LAW

TABLE OF CONTENTS

BACKGROUND ................................................................................................................ 1

FINDINGS OF FACT ....................................................................................................... 5

I. INTRODUCTION .............................................................................................. 5

A. The Parties ............................................................................................. 5

B. RFC's Role in the Mortgage Backed Securities Market .................... 6

C. Client Contracts ..................................................................................... 6

1. The March 2000 Client Contract ............................................... 7

2. The June 2001 Client Contract .................................................. 8

D. The AlterNet Guide and the Client Guide .......................................... 9

E. The Guides' Key Provisions ................................................................ 10

1. Sole Discretion ........................................................................... 10

2. Knowledge, Reliance, and Waiver ........................................... 11

3. Specific Representations and Warranties ............................... 13

4. Events of Default & Non-Exclusive, Cumulative Remedies .................................................................................... 14

5. Repurchase ................................................................................. 15

6. Indemnification .......................................................................... 15

F. RFC's Securitization Business ............................................................ 17

1. Teresa Farley, ResCap Trial Witness and ResCap's 30(b)(6) Witness on Securitization .......................................... 17

2. RFC Relied on the Truthfulness of Originator Representations and Warranties During Securitization ....... 18 3. The Key RFC Securitization Transaction Documents ......... 19

a. RFC Loan Sale Agreements .......................................... 19

b. RFC's Pooling and Servicing Agreements ................... 20

c. Loan Tape and Mortgage Loan Schedule .................... 22

d. RFC's Prospectus Supplements .................................... 24

4. RFC's Securitization Shelves .................................................. 26

5. The RMBS Trustees ................................................................. 26

6. The Monolines .......................................................................... 27

G. RFC's Bankruptcy and Pre-Petition Litigation ............................... 27

1. The Pre-Bankruptcy Claims and Litigation ........................... 28

2. The Original RMBS Settlement ............................................... 29

3. The Bankruptcy, and RMBS Trust and Monoline Claims ... 31

4. The 9019 Proceeding and the Mediation ................................. 34

5. The Settlements and Expert Assessment of the Settlements .......................................................................... 42

6. The Bankruptcy Court's Approval of the Settlements .......... 45

II. PRMI'S BREACHES OF ITS CLIENT CONTRACTS WITH RFC ........ 46

A. Mr. Butler's Reunderwriting Review of PRMI Loans and Global Loans ........................................................................................ 46

B. Ms. Keith, PRMI's Reunderwriting Expert ...................................... 48

C. Mr. Butler's Identifications of AlterNet Guide Breaches ................ 50

1. The Seven AlterNet Loans at Issue .......................................... 52

a. Loan 4375505 .................................................................. 52 b. Loan 4962418 .................................................................. 53

c. Loan 4117058 .................................................................. 54

d. Loan 4380515 .................................................................. 55

e. Loan 4115211 .................................................................. 55

f. Loan 4550405 ................................................................... 57

g. Loan 4413350 .................................................................. 59

D. Mr. Butler's Identification of Breaches of Four Assetwise Loans Made Under the Client Guide ............................................................ 62

1. Loan 5798390 ............................................................................. 62

2. Loan 8257547 ............................................................................. 63

3. Loan 10381337 ........................................................................... 65

4. Loan 6231616 ............................................................................. 67

E. Mr. Butler's Identification of Countrywide Loan Breaches: Loan 10226985 ...................................................................................... 69

III. PRMI'S BREACHES CONTRIBUTED TO RFC'S LIABILITY ............ 70

A. Bankruptcy Evidence Shows That PRMI's Breaches Contributed to RFC's Liability .......................................................... 71

1. Proofs of Claim in the Bankruptcy Asserted Origination-Level Breaches ..................................................... 71

2. The Bankruptcy Participants Measured RFC's Liability By Examining Origination Guideline Breaches ..................... 72

B. PRMI's Breaches Contributed to RFC's Risk of Liability on Specific Trust Representations ........................................................... 74

1. Mr. Butler Identified PRMI Breaches That Created Risk .... 74 2. PRMI's Experts Did Not Address the Issue of Risk of Liability ......................................................................... 78

C. The Court Finds ResCap's Evidence on the Proper Interpretations of the Trust Reps & Warranties More Persuasive ........................... 81

1. Client Contracts Gave Enforceable Loan-Level Reps ........... 81

2. The MLS Reps Were Not Merely Transcription Reps .......... 82

a. Ms. Farley's Testimony ................................................. 83

b. Mr. Butler's Testimony ................................................. 83

c. Judicial Interpretation of the MLS Rep ....................... 84

d. Actual Reliance by Stakeholders .................................. 84

e. MLS Rep Breach Remedy is a Loan-Level Remedy ... 85

f. No Persuasive PRMI Evidence Was Introduced To the Contrary ............................................................. 86

3. The No-Default Reps Were Not Merely Payment Default Reps .............................................................................. 87

4. The Loan Program Reps Were Enforceable For Single Loans .............................................................................. 93

5. The Credit Grade Reps Were Enforceable For Single Loans ............................................................................ 102

6. Trust Reps & Disclosures Were Passed Through To Monolines ................................................................................. 103

7. The Fraud Disclaimer Did Not Eliminate RFC's Risk of Liability ............................................................................... 105

8. The No-Fraud Rep .................................................................. 111

9. The Substantial Compliance Rep .......................................... 112

IV. RESCAP'S DAMAGES CALCULATION IS REASONABLE .............. 114

A. Dr. Snow Allocated to Breaching Losses ......................................... 114

1. The RMBS Trust Settlement Allocation ............................... 115

2. The Monoline Settlement Allocation ..................................... 118

3. The Total Allocation ................................................................ 120

B. Allocation to Breaching Losses is Reasonable and Reliable .......... 120

1. RFC's Settlement Was Allocated to Breaching Losses ........ 121

2. Similar Settlements Have Allocated to Breaching Losses ... 123

C. Allocating to Additional Factors is Unnecessary and Unreliable .. 124

1. Challenges to Certain Assumptions in Dr. Snow's Model .. 126

a. Legal Interpretations of Trust Reps ........................... 126

b. Causation and Materiality .......................................... 127

c. "Election of Remedies" Defense .................................. 128

d. Statute of Limitations .................................................. 129

i. Likelihood of RMBS Defendants' Success ...... 134

ii. Lower Settlement Value ................................... 138

2. Accounting For Only Select Unresolved Legal Issues & Defenses Would Have Introduced Bias and Speculation Into the Model ......................................................................... 139

3. Assigning Probabilities Would Be Speculative And Imprecise ................................................................................. 141

D. Dr. Snow Implemented His Methodology Reasonably .................. 144

1. The Treatment of the NDS Trust Breach Rate Is Reasonable ........................................................................... 144 2. The Definition of the At-Issue Population is Reasonable .... 146

3. The Monoline Allocation Approach is Reasonable .............. 147

4. The Point Estimate is an Appropriate Measure Of Damages ............................................................................. 149

5. Dr. McCrary's Prior Testimony Undermined His Credibility ......................................................................... 151

CONCLUSIONS OF LAW ........................................................................................... 154

I. OVERVIEW & ELEMENTS OF CLAIM FOR CONTRACTUAL INDEMNIFICATION...