A spat between Newport Beach-based Impac Mortgage Holdings Inc. and Credit Suisse First Boston LLC has resulted in a $3 million lawsuit.
While the stakes aren’t big, the suit offers a glimpse into the inner workings of the mortgage industry, which has a heavy concentration here.
In the suit, filed last month in Orange County Superior Court, Impac alleges that Credit Suisse illegally acquired loans that Impac had rights to.
Impac, a real estate investment trust that invests in mortgages, accuses the investment bank of buying loans from Florida’s General Mortgage Corp., which claimed to own them.
The lawsuit charges that Credit Suisse continued buying loans from General Mortgage even after Impac alerted Credit Suisse to the alleged fraud.
“There can be no question from the course of conduct between Impac and CS First Boston that CS First Boston knew of Impac’s interest and turned a blind eye,” said Ronald Rus, a lawyer with Irvine’s Rus, Miliband & Smith, which is representing Impac.
“After Impac alerted CS First Boston, CS First Boston continued to ignore Impac’s interest and assist General Mortgage in its ponzi scheme,” Rus charged.
Credit Suisse declined to comment on the suit. Impac also is suing General Mortgage for more than $5 million. General Mortgage couldn’t be reached for comment. The company filed for bankruptcy, according to Rus.
On Sept. 22, Credit Suisse was notified of the suit and has 30 days to respond, according to Rus. He said it’s not clear if the suit will result in a trial or a settlement, though most suits end up being settled.
The litigation hurls some heavy charges at Credit Suisse, such as aiding and abetting fraud, conspiracy to commit fraud and negligence.
Impac is a big, but low-profile company that buys mortgages from originators such as Irvine’s Greenlight Financial Services Inc. and Newport Beach-based Express Lending. As of last week, Impac counted a market value of $1.8 billion.
The company packages loans in pools and sells them as bonds to Wall Street investors. Impac also sells mortgages to investment bankers who package them for sale as investments.
The lawsuit marks a shift in the nearly four-year relationship among Impac, Credit Suisse and General Mortgage.
Since 2000, Impac has funded loans made by General Mortgage under what it calls “a master repurchase agreement.” Under the pact, Impac provided a $5 million warehouse line of credit to General Mortgage to originate loans, according to the suit. The line grew to $10 million in late 2003, the suit said.
Loans made under the credit line were “reverse repurchase agreements” in which Impac acquired the loans from General Mortgage, according to the lawsuit.
Credit Suisse also wound up buying many of the loans, according to Impac’s lawsuit. When Credit Suisse bought loans originated by General Mortgage, Credit Suisse wired money directly to Impac, according to the suit.
But in July, General Mortgage began selling loans directly, receiving money transfers that would have gone to Impac, the suit charges.
General Mortgage sent some of the money to Impac, “in effect using Impac’s funds in operation of a ‘ponzi scheme,'” according to the lawsuit.
Impac alleges that General Mortgage sent it forged loan documents and kept real documents to use for loan sales, according to the suit.
The initial dispute involved 37 loans worth $5.3 million, of which 16 were bought by Credit Suisse, the lawsuit said.
In late July, Impac said it made Credit Suisse aware of its suspicions. The investment bank bought another seven loans after the warning, according to the suit.
