Bank of NY Mel­lon sued by US reg­u­la­tor over $2b in soured mort­gages

The Pak Banker - - COMPANIES/BOSS -

A US reg­u­la­tor sued Bank of New York Mel­lon Corp over $2.06 bil­lion in residential mort­gage-backed se­cu­ri­ties pur­chased by a failed Texas bank, and ac­cused it of breach­ing its du­ties as bond trustee to pro­tect in­vestors.

In a com­plaint filed in Man­hat­tan fed­eral court, the Fed­eral De­posit In­sur­ance Corp, which sued in its ca­pac­ity as re­ceiver for the for­mer Guar­anty Bank, said it suf­fered more than $440 mil­lion in losses when it sold the se­cu­ri­ties in March 2010.

The FDIC filed a sim­i­lar law­suit against US Ban­corp (USB.N), another ma­jor bond trustee, over more than $248 mil­lion of mort­gage debt bought by Guar­anty, and re­sult­ing in "sig­nif­i­cant" losses when those se­cu­ri­ties were sold. Austin, Texas- based Guar­anty Bank closed in Au­gust 2009, and the FDIC ar­ranged for its de­posits to be as­sumed by BBVA Com­pass of Birm­ing­ham, Alabama, a unit of Spain's Banco Bil­bao Viz­caya Ar­gen­taria SA (BBVA.MC). At the time, the reg­u­la­tor es­ti­mated the clo­sure would cost its de­posit in­sur­ance fund $3 bil­lion.

The Bank of New York Mel­lon law­suit con­cerned 12 mort­gage-backed trusts is­sued by Bear Stearns Cos' EMC Mort­gage Corp unit and by Coun­try­wide Home Loans Inc in 2005 and 2006.

JPMor­gan Chase & Co (JPM.N) bought Bear in 2008, and Bank of Amer­ica Corp (BAC.N) bought Coun­try­wide in the same year.

As bond trustee, BNY Mel­lon "shirked its duty" to en­sure the loan doc­u­ments were not in­com­plete or de­fec­tive, the FDIC said.

"While BNY Mel­lon stood idly for years, the spon­sors kept de­fec­tive mort­gage loans in the cov­ered trusts, ser­vicers reaped ex­ces­sive fees for ser­vic­ing the de­faulted loans from the cov­ered trusts, and plain­tiff was left to suf­fer enor­mous losses," the law­suit said.

A spokesman for Bank of New York Mel­lon had no im­me­di­ate com­ment. US Ban­corp spokesman Dana Ri­p­ley de­clined to com­ment.

Since 2013, the FDIC has se­cured $1.83 bil­lion in set­tle­ments with fi­nan­cial in­sti­tu­tions over mort­gage-backed se­cu­ri­ties sold to banks it took into re­ceiver­ship.

In July, Mor­gan Stan­ley (MS.N) agreed to pay the FDIC $24 mil­lion to re­solve a law­suit filed in a Texas state court, ac­cord­ing to a set­tle­ment agree­ment on the reg­u­la­tor's web­site.

The cases are Fed­eral De­posit In­sur­ance Corp v. The Bank of New York Mel­lon, U.S. Dis­trict Court for the South­ern Dis­trict of New York, No. 15-06560; and Fed­eral De­posit In­sur­ance Corp v U.S. Bank NA in the same court, No. 15-06570.

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