A New York federal judge has granted final approval to a $69 million settlement by Bank of America NA and U.S. Bank in a mortgage-backed securities class action. This came one week after ruling that Plaintiffs in a similar case couldn’t intervene to oppose the deal. U.S. District Judge Katherine Forrest approved the settlement during a hearing last month. The settlement resolves allegations from investors that the banks failed in their role as trustees for mortgage-backed securities trusts containing shoddy loans that were issued by Washington Mutual Inc. before the 2008 financial crisis.
Judge Forrest previously ruled on March 5 that a separate group of investors pursuing similar claims against U.S. Bank could not intervene for the purpose of objecting to the settlement. The judge said the terms of the agreement didn’t bar those investors’ claims. Judge Forrest noted that no member of the settlement class had lodged an objection. She said in her order: “That is, in the court’s view, entirely appropriate given the positive result that occurred.”
This suit had been one of the first to claim that trustees of residential mortgage-backed securities trusts had failed to adequately safeguard trust assets. The suit was initially filed in April 2012. In an amended complaint in November 2013, the Plaintiffs claimed that loans underlying the securities were plagued by delinquencies in borrower payments, credit losses and downgrades by rating agencies. The amended complaint said that the bank trustees were tasked with carefully monitoring the performance of the loans. Instead, they “stood by and did nothing” as the loans soured and reports emerged of widespread underwriting abuses at Washington Mutual,.
As we reported in a prior issue, 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. The parties announced the $69 million settlement in November 2014. Interestingly, six weeks later, the Second Circuit issued a precedential decision in another Residential Backed Mortgage Security (RBMS) case that, had it been issued earlier, apparently would have undermined the Plaintiffs’ claims under the Trust Indenture Act.
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