Bank of America Corp. and U.S. Bancorp have agreed to pay $69 million to settle a class action lawsuit over their role as trustee for mortgage-backed securities containing shoddy loans issued by Washington Mutual Inc. (WaMu), which collapsed at the height of the 2008 financial crisis. The settlement was described as the first-ever settlement in a class action over the conduct of a residential mortgage-backed securities trustee. Pension funds and other investors have accused Bank of America and U.S. Bancorp of failing to properly monitor the underlying mortgages, which tanked during the crisis. The investors have also said the banks failed to force WaMu to fix or buy back defective loans.
The suit was initially filed in April 2012 and the complaint was amended in November 2013. The Plaintiffs claimed in the amended complaint that loans underlying the securities were plagued by delinquencies in borrower payments, credit losses and downgrades by rating agencies. The bank trustees had the duty to with carefully monitor the performance of the loans. Instead, it was claimed they “stood by and did nothing” as the loans “soured.” There were also reports emerged of widespread underwriting abuses at Washington Mutual.
Washington Mutual collapsed in September 2008 due to massive losses in its subprime mortgage loans. JPMorgan Chase & Co. took over the bank in a merger brokered by the Federal Deposit Insurance Corp. Plaintiffs in the suit — large investors who bought and sold the securities — claimed to have suffered hundreds of millions of dollars in losses as the financial crisis worsened.
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