ECC Capital Corp. said last week that one of its units is suing a subsidiary of Bear Stearns, seeking more than $20 million for an alleged breach of contract over the sale of a residential mortgage loan portfolio.
"Based on our preliminary review, we believe this case is without merit and we intent to put forth a vigorous defense," says Renu Aldrich, a Bear spokesperson.
Last October, Bear unit EMC Mortgage Corp. agreed to acquire and securitize ECC subsidiary Performance Credit Corp.'s subprime portfolio for $26 million. EMC Mortgage specializes in subprime and Alt-A mortgage loans.
Irvine, Calif.-based ECC, which filed suit in the Central District of California, Southern Division, alleges that while EMC agreed to purchase and securitize Performance's entire monthly loan production and assume responsibility for any early payment defaults by mortgage loan borrowers, it breached the agreement, delaying the purchase of certain loans, according to Securities and Exchange Commission filings. As a result, ECC said it lost more than $20 million when the mortgage loans declined in value from the date of the purchase agreement to the date it actually bought them.
ECC president and CFO Roque Santi said he couldn't comment further until the release of the company's 1O-K filing next month, which is being delayed due to "the complexities of the recent transaction involving the sale of ECC Capital's mortgage banking business."
ECC is also seeking damages of more than $5 million for EMC's breach of a loan servicing agreement, according to the SEC filings. The company alleges that EMC breached the contract by failing to act diligently to collect all payments due under each of the mortgage loans required to be serviced and to perform its obligations under the agreement.
The New York Stock Exchange delisted ECC in March as a result of its failure to satisfy the NYSE's continued listing standards. "In addition to the previously announced failure of the company to maintain the required minimum share price, NYSE regulation staff considered the abnormally low trading price for ECC Capital's common stock in making its decision," the NYSE said in a statement.
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