Bank of America Corp., the biggest U.S. bank by assets, was sued by investors in mortgage-backed bonds who are seeking to force the bank to buy back loans underlying their securities.
Bank of America’s Countrywide Financial unit breached representations and warranties about the loans, which it originated, the investors said in the complaint filed today in New York State Supreme Court in Manhattan.
“Each of these breaches of representations and warranties materially and adversely affected the interests of both the trust and plaintiffs in those mortgage loans,” they said.
The lawsuit against Bank of America was filed as defaults on mortgage loans soar and mortgage investors demand that banks buy back poorly performing loans. So-called mortgage putbacks may cost banks and lenders as much as $90 billion, JPMorgan bond analysts said in an October report.
A separate group of mortgage-bond investors is fighting with Bank of America over $47 billion of securities. The group, which includes Pacific Investment Management Co., MetLife Inc. and the Federal Reserve Bank of New York, said in October it was considering declaring Bank of America in default of its loan-servicing duties.
“There hasn’t been a lot of repurchase activity recently in terms of lawsuits being filed but there’s been a lot more activity going on behind the scenes with loan files being turned over and looked through,” Isaac Gradman, a San Francisco-based consultant and formerly a lawyer at Howard Rice Nemerovski Canady Falk & Rabkin, said today.
The plaintiffs in the New York lawsuit are a group of limited liability companies with variations of the name Walnut Place, according to the court filing. They also claimed in the lawsuit that Bank of New York Mellon Corp., the trustee for investors, “unreasonably failed” to sue Bank of America to force it to repurchase the loans.
The plaintiffs are suing on behalf of the trust that holds the loans and which issued the mortgage bonds, according to the court filing. The original balance of securitization involved in the case was $2.8 billion, according to data compiled by Bloomberg.
The Walnut Place investors said at least 1,190 mortgage loans in the trust didn’t comply with underwriting guidelines and that at least 413 had loan-to-value ratios of more than 95 percent. Countrywide represented that no loan had a ratio of more than 95 percent, the investors said.
Kevin Heine, a BNY Mellon spokesman, declined to immediately comment. Jerry Dubrowski, a spokesman for Charlotte, North Carolina-based Bank of America, didn’t return a call seeking comment. Bank of America acquired Countrywide in 2008.
The case is Walnut Place LLC v. Countrywide Home Loans Inc., 650497-2011, New York State Supreme Court (Manhattan).