Since the last issue of the Report, more lawsuits have been filed against JPMorgan Chase & Co. and Bank of America Corp. by investors claiming losses on $4.5 billion of bad mortgage debt. The Plaintiff, Sealink Funding Ltd., claims it lost money after buying nearly $2.4 billion of residential mortgage-backed securities (RMBS) from JPMorgan and $1.6 billion from Bank of America from 2005 to 2007. The Plaintiff says it relied on offering materials that were misleading about the quality of the underlying loans.
Sealink, an Irish entity, oversees risky RMBS that contributed to the near collapse of Germany’s Landesbank Sachsen AG. Interestingly, another German company, Landesbank Baden-Wurttemberg, raised similar claims in a separate lawsuit against JPMorgan over $500 million of RMBS that it bought. Each of the lawsuits accuses the banks of packaging large amounts of high-risk mortgages by such issuers as Countrywide Financial (now owned by Bank of America), Bear Stearns, and Washington Mutual (now owned by JPMorgan), in pursuit of higher profits. It’s alleged further in the lawsuit that:
This misconduct has resulted in astounding rates of default on the loans underlying the defendants’ RMBS and massive downgrades of the (investors’) certificates, the vast majority of which are now considered ‘junk.’
In the lawsuits, the investors are seeking compensatory and punitive damages. The cases were filed in the New York State Supreme Court in Manhattan. In a separate lawsuit filed in the same court, Britain’s Barclays Plc was sued by Germany’s HSH Nordbank AG, which said it lost $40 million after being misled into buying risky RMBS.
Banks are facing a good number of lawsuits by mortgage securities investors seeking to hold them responsible for losses on debt that turned toxic once the housing and credit crises began more than four years ago. These slip-shod and highly risky lending practices were bound to cause problems if the economy ever hit a snag. As we have previously reported, Bank of America is seeking court approval of an $8.5 billion global settlement covering investors in mortgage pools with $174 billion of unpaid Countrywide principal balances.
As we mentioned in the October issue, Bank of America and JPMorgan are also among lenders negotiating with regulators including all 50 state Attorneys General on a multibillion-dollar accord addressing foreclosure abuses. The cases are all pending in the New York State Supreme Court, New York County.
Source: Insurance Journal
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