Bad Underwriting at Heart of Class Action Lawsuit

Bombardier Capital named in mfg housing RMBS case

February 15, 2005

By PATRICK CROWLEY

The loans served as collateral for the Bombardier Capital Mortgage Securitization Pass-Through Certificates Series 2000A, a package of mortgage loans bundled for investors that totaled $360 million and were issued in January of 2000.

“The misstatements included that the loans were issued only after careful scrutiny of borrower credit,” Frank Schirripa, the lawyer who filed the lawsuit, said in a press release.

“In fact, borrower creditworthiness was regularly disregarded,” Schirripa alleged. “The truth only began to be partially revealed as extraordinary high foreclosure rates persisted, leading to a series of rating downgrades.”

Schirripa said that for instance, Fitch Ratings downgraded the certificates in February of 2004, reporting “a combination of underwriting problems have resulted in the highest cumulative losses of any manufactured housing lender.”

Fitch also downgraded five classes of the certificates in December of 2002, with ratings going from as high as ‘AA’ down to ‘D’, according to a copy of the lawsuit.

Those downgrades resulted in a drop in price of the Certificates, from a high of $106.25 down to $69.30, the suit claims.

Schirripa said statements in the prospectus issued by Bombardier “were materially false and misleading because the credit department was directed by sales and senior management to disregard underwriting standards to approve all loans.”

Bombardier could not be reached to comment and has not yet formally responded to the lawsuit. The plaintiff is listed as the Teamsters Local 445 Freight Division Pension Fund, a labor union retirement fund.

Bombardier is best known in the corporate world as a maker of regional commercial jet aircraft and transportation equipment. It is headquartered in Toronto, trades its share on the Frankfurt, Germany, stock exchange and had sales last year of about $15 billion.

It’s finance arm is located in Jacksonville, Fla.

In his lawsuit, Schirripa seeks to describe the business environment Bombardier was operating in when it allegedly issued the prospectus containing the misleading material.

The lawsuit cites several news stories about the “widespread oversupply of manufactured homes” in the late 1990s.

“The condition of severe oversupply between 1997 and 1999 led to aggressive marketing practices and extremely lax underwriting standards, particularly in southern states,” Schirripa said in the lawsuit.

According to Schirripa “fraudulent underwriting practices” were rampant and led to major financial problems for major players in the business of making manufactured housing loans.

“In order to compete in the same market as a ‘late comer’ trying to gain a foothold (Bombardier) abandoned its underwriting standards in order to book loans,” the lawsuit alleges. “However, its improper lending practices ultimately resulted in massive foreclosures and repossessions in 2001. These results, in turn, forced (Bombardier) to announce its exit from the mobile home lending market.”

In September of 2001 Bombardier issued a press release announcing its retreat from the manufactured housing business due to “deterioration of target markets and correlating pressures of profitability,” the suit states.

About a year later Fitch downgraded the mortgage securitizations.

Patrick Crowley is a political reporter and columnist and former business writer for The Cincinnati Enquirer. Email Patrick at: pcrowley@enquirer.com