Bank of NY Mellon sued by U.S. regulator over $2 billion in soured mortgages

Wed Aug 19, 2015 7:51pm EDT
 
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By Joseph Ax

NEW YORK (Reuters) - A U.S. regulator sued Bank of New York Mellon Corp BK.N on Wednesday 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: Quote), 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: Quote). 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: Quote) bought Bear in 2008, and Bank of America Corp (BAC.N: Quote) 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.   Continued...

 
The Bank of New York Mellon Corp. building at 1 Wall St. is seen in New York's financial district March 11, 2015. REUTERS/Brendan McDermid