Sept. 6 (Bloomberg) -- WMC Mortgage Corp. and EquiFirst Corp. were sued by a trustee over a pool of more than $550 million in securities backed by allegedly defective mortgage loans.
The companies originated the loans and failed to repurchase them, in violation of a 2006 agreement with securities holders, U.S. Bank NA said in the lawsuit filed Sept. 2 in federal court in Minneapolis. U.S. Bank, a unit of Minneapolis-based U.S. Bancorp, asked the court to force WMC and EquiFirst to buy back all defective loans.
WMC, then owned by General Electric Co., and EquiFirst, a unit of London-based Barclays Plc, falsely assured purchasers that the loans were creditworthy, U.S. Bank said. As of June 27, more than 45 percent of the $555 million in the original loan balance had been liquidated and more than 30 percent of the remaining loans were delinquent, the trustee said.
“The excessive number of defaults and delinquencies in the Trust would likely not have occurred if the originators had abided by the No Fraud Clause and/or followed the underwriting standards,” U.S. Bank said in the complaint.
Barclays closed EquiFirst in February 2009 after the U.S. market for its subprime mortgages vanished amid the nation’s housing collapse. GE, based in Fairfield, Connecticut, sold WMC in 2007, while retaining reserves to cover obligations for certain kinds of loans made while it owned the business.
Kristin Friel, a Barclays spokeswoman, declined to comment on U.S. Bank’s lawsuit. Russell Wilkerson, a GE spokesman, declined to immediately comment on the suit.
Recovco Mortgage Management LLC, one of the investors, began investigating the loans in the trust in April 2010, the trustee said in the lawsuit. “Recovco identified material breaches” of representations or warranties in 150 of the 200 loan files it reviewed, according to the complaint.
In 55 of the loans, Recovco found misrepresentations of borrower income and/or employment, U.S. Bank said. In one case, a borrower stated on his loan application that he earned $14,782 a month for performing “account analysis,” the trustee said. According to the borrower’s income-tax returns, he was a taxi driver with a monthly income of $1,548, U.S. Bank said.
U.S. Bank is acting as trustee for MASTR Asset Backed Securities Trust 2006-HE3, the company said in court papers.
“We filed the suit in our role as trustee at the direction of investors,” Thomas Joyce, a U.S. Bank spokesman, said today. He declined to comment further.
The case is MASTR Asset Backed Securities Trust 2006-HE3, 11-02542, U.S. District Court, District of Minnesota (Minneapolis).
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