Lehman to pay $2.4B to end crisis-era mortgage claims

Lehman Brothers Holdings’ bankruptcy estatewill pay $2.38 billion to compensate for its role in the previous decade’s mortgage crisis, a federal judge decided, far less than the $11.4 billion some hedge funds had sought.

U. S. Bankruptcy Judge Shelley Chapman ruled in Manhattan Thursday after a 22-day trial to resolve the long-running dispute over Lehman’s flawed residential mortgage-backed securities. Her decision puts a final tally on what buyers of the securities, known as RMBS, can recover for breaches by the investment bank when it pooled individual home loans and sold them off as bonds during the housing bubble.

Lehman “created and enjoyed a robust market” in securitizing home loans, Chapman said, recounting the company’s role in the financial crisis. But plans went awry when the housing bubble popped and defaults soared on mortgage bonds, which “threatened to pull the entire U.S. economy into the abyss as well,” Chapman said. New Yorkbased Lehman went bank- rupt in 2008.

The trustees failed to meet a “burden of proof” to show breaches on around 72,000 loans, and struggled to categorize massive amounts of data bymaking some loans representative of others, she said. Chapman also said Lehman’s administrator was unable to provide enough information, and that ultimately she turned to an earlier settlement by institutional investors who had valued claims at around $2.4 billion.

While Lehman’s estate has said that holders of the RMBS should get $2.38 billion atmost, and some insti- tutional holders agreed to a similar number, a group of trustees initially sought $37 billion and argued at trial for $11.4 billion.

Chapman’s ruling concerns hundreds of thousands of loans that Lehman packaged into RMBS from 2002 to 2007, telling investors that the documents for each loan contained no “untrue statement” and that borrowers hadn’t given false or misleading information. A complex estimation trial that ran from November to February waded through thousands of loan records on which the trustees asserted breaches.