Wells Fargo Sued by Credit Union Regulator Over Trustee RChris Dolmetsch
Wells Fargo & Co. was sued by the agency that oversees federal credit unions and accused of failing to protect investors while acting as trustee over securities backed by home loans that defaulted after the 2008 credit crisis.
Investors in the mortgage securities that played a central part in the housing bubble that helped send the U.S. into the worst recession since the 1930s are increasingly taking aim at trustees over their roles in the crisis.
The National Credit Administration Union Board’s complaint, filed yesterday in federal court in Manhattan, follows a similar action taken by the regulator last week against Bank of America Corp. and U.S. Bancorp. The cases are based on the same allegations as those filed in June against trustees by mortgage-bond investors including BlackRock Inc. and Pacific Investment Management Co.
Wells Fargo, as trustee for 27 trusts that issued residential mortgage-backed securities, failed to review loan files for irregularities and ignored signs of trouble with the trusts, which suffered “enormous losses due to the high number of mortgage defaults, delinquencies and foreclosures caused by defective loan origination and underwriting,” according to the complaint.
“Even after ample evidence came to light that the trusts were riddled with defective loans, defendant shut its eyes to such problems and failed to take the steps necessary to protect the trusts and certificate holders,” the board said in the suit.
The National Credit Union Administration sued on behalf of five credit unions it is liquidating which bought certificates in the 27 trusts with an original face value of about $2.4 billion.
“We strongly disagree that Wells Fargo is in any way responsible for any losses incurred on these transactions,” Trisha Schultz, a spokeswoman for the San Francisco-based bank, said in an e-mail.
The administration is one of eight investors objecting to a $4.5 billion settlement with J.P. Morgan Chase & Co. over investor claims of faulty home loans, which trustees including U.S. Bank and Bank of New York Mellon Corp. asked a New York state court to approve in August.
JPMorgan, the largest U.S. bank, announced the accord in November 2013, a week before it agreed to a record $13 billion settlement with the U.S. over faulty mortgage securities. The bank entered into the lawsuit settlement as part of its effort to move past cases tied in part to the housing crisis.
The Federal Home Loan Bank of Boston and other objectors to the JPMorgan deal told New York State Supreme Court Justice Marcy Friedman in Manhattan this month that the settlement was negotiated by investors with ties to JPMorgan and that the bank paid for the evaluation of the pact by the securities’ trustees, who weren’t a party to the talks. They’re asking for more information about the deal.
Matthew Ingber, an attorney for Bank of New York Mellon with Mayer Brown LLP, told Friedman the trustees completed an “exhaustive evaluation process” of the JPMorgan settlement and notified investors in the trusts six times before requesting approval. The trustees agreed to the accord to avoid litigation “that could take many years and produce no certain outcome,” Ingber said.
The cases are National Credit Union Administration Board v. Wells Fargo Bank N.A., 14-cv-10067, and National Credit Union Administration Board v. U.S. Bank National Association, 14-cv-9928, U.S. District Court, Southern District of New York (Manhattan).
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