DB Structured Products Inc., a unit of Deutsche Bank AG, was accused in a lawsuit of selling a a “massive number” of defective loans to a securitization trust.
HSBC Bank USA NA, acting as trustee, asked in a federal lawsuit filed yesterday in New York that DB Structured Products be ordered to pay unspecified money damages or to buy back the suspect loans, which were collateral for certificates issued by the trust.
At least 1,302 of more than 4,000 loans securitized and sold to the trust breached the bank unit’s warranties about their origination, the trustee said in the complaint. DB Structured Products also allegedly broke a promise to repurchase bad loans.
“DBSP’s breaches go to the very heart of the relevant agreements,” according to the breach of contract claim brought by HSBC on behalf of Ace Securities Corp Home Equity Loan Trust Series 2007-WM2, a trust created under New York law in 2007.
The quantity of bad loans exceeded those contemplated by the parties, HSBC alleged. Because DB Structured Products controlled the selection of loans for securitization, it was the only party positioned to accept risks that included bad underwriting.
Ace Securities entities sued the Deutsche Bank unit in New York state court in September and again in January. The unit of German’s largest lender was also named as a defendant in a separate lawsuit in November.
Duncan King, a New York-based spokesman for Deutsche Bank, said he couldn’t immediately comment on the allegations in the complaint. The lender is based in Frankfurt.
The aggregate principal balance of loans sold to the Ace trust subject to yesterday’s lawsuit was $784,302,135, according to the complaint. Based on that figure, the trust publicly offered certificates worth almost $753 million.
“The trust holds the mortgage loans for the benefit of investors in the certificates, who ultimately bear the economic consequences of the mortgage loans’ performance or lack of performance,” HSBC said in the complaint.
The case is ACE Securities Corp. Home Equity Loan Trust Series 2007-WM2 v. DB Structured Products, 13-cv-02053, U.S. District Court for the Southern District of New York (Manhattan).