NEW YORK (Reuters) - Bank of America Corp and U.S. Bancorp have reached a $69 million settlement in a class action lawsuit over their roles as trustees for securities backed by risky mortgages from Washington Mutual Inc, which failed in 2008.
Lawyers for the investor plaintiffs called the settlement the first of its kind in a class action challenging the conduct of residential mortgage-based securities bond trustees.
The agreement resolves claims by pension funds that filed the lawsuit alleging the banks failed to protect investors from hundreds of millions of dollars of losses when home loans underlying the securities they bought soured.
The settlement was disclosed on Friday in papers filed with the U.S. district court in Manhattan.
Both defendants denied liability, and Bank of America would make the $69 million cash payment on behalf of itself and U.S. Bancorp, the papers show. The accord requires approval by U.S. District Judge Katherine Forrest.
Bank of America spokesman Lawrence Grayson and US Bancorp spokesman Patrick Swanson declined to comment.
Deborah Clark-Weintraub, a partner at Scott & Scott representing the plaintiffs, in an email said the settlement “represents an excellent recovery for class members.”
The accord resolves a lawsuit filed in April 2012 by the Policemen’s Annuity and Benefit Fund of the City of Chicago, and joined by many other pension funds and institutional investors.
Bank of America, which is based in Charlotte, North Carolina, and U.S. Bancorp, which is based in Minneapolis, were accused of failing as bond trustees to properly oversee a few dozen trusts dating from 2005 to 2007 that contained loans from Washington Mutual, then a major mortgage lender.
According to the plaintiffs, the banks failed to properly take possession of loan files or ensure they were complete, or require Washington Mutual to fix or buy back defective loans.
In court papers, the plaintiffs said their investments sank in value because of high loan default rates, foreclosure delays and substantial credit losses that would not have occurred “but for defendants’ failure to perform their responsibilities.”
Lawyers for the plaintiffs plan to seek from the settlement fund up to $13.8 million for legal fees and $3 million to cover expenses.
The lawsuit was filed a week after another federal judge in Manhattan let four pension funds pursue similar claims against Bank of New York Mellon Corp over its role as bond trustee for Countrywide Financial Corp, now part of Bank of America.
Washington Mutual was the largest U.S. savings and loan before it failed on Sept. 25, 2008. JPMorgan Chase & Co bought most of its operations.
The case is Policemen’s Annuity and Benefit Fund of the City of Chicago v. Bank of America NA et al, U.S. District Court, Southern District of New York, No. 12-02865.
Reporting by Nate Raymond and Jonathan Stempel in New York; Editing by Leslie Adler and Alan Crosby