Opinion ID: 822874
Heading Depth: 2
Heading Rank: 2

Heading: The FAC

Text: On June 16, 2009, the Fund filed the FAC, which brought claims under §§ 11, 12(a)(2), & 15 of the ’33 Act based on all six of the trusts that NMFC issued in connection with the June 16, 2006 registration statement. In the FAC, the Fund alleged that the initial prospectus and each of the supplemental prospectuses all misstated and omitted material facts, most notably, the fact that NMI, in an effort to increase the number of mortgages it originated, had abandoned its disclosed underwriting guidelines. The FAC based its assertion that NMI had abandoned its underwriting guidelines on two factual allegations. First, the Fund alleged that, although Moody’s and S & P, the two rating agencies who had evaluated the six trusts, had initially given the trusts some of their highest 9 ratings, they had later dramatically downgraded the trusts, categorizing them as either “speculative” or at “substantial risk of default.” Second, the Fund alleged that an unusually large percentage of the mortgages in each trust had entered default. According to the FAC, 8.5% of the mortgages had defaulted within four months of their trust’s offering, 12.6% had defaulted within six months, and over 51% had defaulted by June 16, 2009. The FAC then referenced the 2007 Mortgage Fraud Report by the Federal Bureau of Investigation (“FBI”), which was based on a study of three million residential mortgages and which indicated that between thirty and seventy percent of “early payment defaults” resulted at least in part from “significant misrepresentations in the original loan applications.” J. App’x at 75.