WASHINGTON – The federal agency overseeing credit unions has accused several major banks of failing to protect credit unions from the loss of billions of dollars in their purchase of mortgage-backed securities.
On Tuesday, the National Credit Union Administration filed suit against Wells Fargo & Co. in a federal court in New York, just days after a similar action against Minneapolis-based U.S. Bancorp and Bank of America.
The suits are part of a broader wave of score-settling by the purchasers of mortgage-backed securities that went bad in 2008.
The administration is also one of eight investors objecting to $4.5 billion settlement by JPMorgan Chase & Co. over investor claims of faulty home loans. Trustees, including U.S. Bank and Bank of New York Mellon Corp. have asked a New York court to approve that settlement.
In the Wells Fargo case, the administration sued on behalf of five credit unions it is liquidating that had purchased $2.4 billion worth of mortgage-backed certificates in trusts Wells Fargo managed.
Wells Fargo told Bloomberg News on Tuesday, "We strongly disagree that Wells Fargo is in any way responsible for any losses incurred on these transactions."
In the suit against U.S. Bancorp and Bank of America, the National Credit Union Administration similarly says the firms failed to investigate signs of trouble in trusts they managed that were filled with risky mortgage-backed securities.
A spokeswoman for U.S. Bank said the company had no comment on the suit.
The civil suit was filed Dec. 16. It concerns 99 trusts and was brought on behalf of five now-defunct credit unions. U.S. Bank was trustee for 61 of the 99 trusts originally and later took over 16 more.
Defaults by unqualified borrowers started almost immediately from the issuance of the risky loans that made up the mortgage-backed securities. Eventually most were reduced to "junk" status, the suit says. However, U.S. Bank did not intervene as the law required, the suit says.
Cumulatively, the 99 trusts suffered losses of more than $11.4 billion by January 2011, the suit says.
Among the legal violations alleged by the government was the charge that U.S. Bank did not even bother to get copies of the loan documents for the mortgages in which the trusts invested. Those documents would have revealed shoddy, sometimes illegal, lending practices that would have allowed U.S. Bank to force issuers of the mortgage-backed securities to buy them back, the suit says.
U.S. Bank acted as a trustee for roughly 30 percent of the residential mortgage backed securities issued between 2004 and 2007, the suit says.
But the bank also acted as a servicer of tens of thousands of residential mortgage loans, some of them risky and improper. The government claims the dual roles led to conflicts of interest that in some cases caused the bank to protect its own financial interests while not acting to protect investors in the trusts it oversaw.
The government asked for a jury trial to determine damages.
Bloomberg News contributed to this report.
Jim Spencer • 202-383-6123
