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Merrill Lynch Sued by Trusts Over $1 Billion in Mortgages

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Merrill Lynch Sued by Trusts Over $1 Billion in Securities
Merrill bought more than 6,000 mortgages with an original principal balance of more than $1.1 billion from a third-party loan originator, ResMAE Mortgage Corp., in 2006 and turned them into tradeable securities that were sold to investors, according to the complaint filed today in New York State Supreme Court in Manhattan. Photographer: Simon Dawson/Bloomberg

Dec. 18 (Bloomberg) -- Bank of America Corp.’s Merrill Lynch unit was sued by two trusts that hold and administer mortgages on behalf of investors who own more than $1 billion of securities collateralized by the loans.

Merrill bought more than 6,000 mortgages with an original principal balance of more than $1.1 billion from a third-party loan originator, ResMAE Mortgage Corp., in 2006 and turned them into tradeable securities that were sold to investors, according to the complaint filed today in New York State Supreme Court in Manhattan.

ResMAE filed for bankruptcy in February 2007 and the trusts pursued claims against ResMAE in bankruptcy through LaSalle Bank, demanding that it buy back loans where borrowers had missed their first or second payments or provide other compensation, according to the complaint. LaSalle in July 2008 settled those claims on behalf of five Merrill-sponsored trusts, including the two plaintiffs in today’s suit.

A review of files associated with the loans in 2011 and 2012 found that more than 2,600 of them “suffered from breaches of representations and warranties” and misstated information, such as the borrowers’ income, employment and property value, according to the complaint.

Contractual Obligations

“Having been liquidated in bankruptcy, ResMAE can no longer fulfill any of its contractual repurchase obligations and thus Merrill must repurchase loans under the terms of the sale agreements,” the trusts said in the complaint.

Lawrence Grayson, a spokesman for Charlotte, North Carolina-based Bank of America, declined to comment on the lawsuit in a telephone interview. Bank of America is the second-largest U.S. lender by assets.

The case is Merrill Lynch Mortgage Investors Trust, Series 2006-RM4 v. Merrill Lynch Mortgage Lending Inc., 654403/2012, New York State Supreme Court, New York County (Manhattan).

To contact the reporter on this story: Chris Dolmetsch in New York at cdolmetsch@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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