Bank of America faces new litigation

Bank of America is one of major banks that have been sued for misrepresenting home loan securities [Reuters]

JPMorgan Chase & Co and Bank of America Corp have been hit with new litigation by investors claiming losses on $4.5bn of soured mortgage debt.

The cases add to litigation targeting the two largest US banks. Several other major banks – including Goldman Sachs and Deutsche Bank – are facing lawsuits by the Federal Housing Finance Agency (FHFA), which is seeking billions of dollars in compensation.

The banks allegedly misrepresented home loan securities at the height of the housing bubble.

Sealink Funding Ltd, the plaintiff, said on Thursday it lost money after buying nearly $2.4bn of residential mortgage-backed securities (RMBS) from JPMorgan and $1.6bn from Bank of America from 2005 to 2007, relying on offering materials that were misleading about the quality of the underlying loans.

According to court papers, Sealink is an Irish entity that oversees risky RMBS that contributed to the near collapse of Germany’s Landesbank Sachsen AG.

Another plaintiff, Germany’s Landesbank Baden-Wurttemberg, raised similar claims in a separate lawsuit against JPMorgan over $500m of RMBS that it said it bought.

High-risk mortgages

The litigants accuse the banks of packaging large amounts of high-risk mortgages by such issuers as Countrywide Financial now owned by Bank of America, and Bear Stearns and Washington Mutual, now owned by JPMorgan, in pursuit of higher profit.

“This misconduct has resulted in astounding rates of default on the loans underlying the defendants’ RMBS and massive downgrades of the [investors’] certificates, the vast majority of which are now considered ‘junk,'” the lawsuits said.

The investors are seeking compensatory and punitive damages in the cases, all filed on Thursday in the New York State Supreme Court in Manhattan.

Lawyers at Bernstein Litowitz Bernstein & Grossmann, which represents Sealink and Landesbank Baden-Wurttemberg, were not immediately available to comment.

A Bank of America spokesman did not immediately return a call seeking comment. A JPMorgan spokeswoman, Jennifer Zuccarelli, declined to comment.

Misled into buying

In a separate lawsuit filed on Thursday in the same court, Britain’s Barclays Plc was sued by Germany’s HSH Nordbank AG, which said it lost $40m after being misled into buying risky RMBS.

There was no immediate comment from a Barclays spokeswoman.

Banks face many lawsuits by mortgage securities investors seeking to hold them responsible for losses on debt that once seemed safe but turned toxic once the housing and credit crises began more than four years ago.

Bank of America is seeking court approval of an $8.5bn global settlement covering investors in mortgage pools with $174bn of unpaid Countrywide principal balances.

That bank and JPMorgan are also among lenders negotiating with regulators including all 50 state attorneys general on a multibillion-dollar accord addressing foreclosure abuses.

The cases are all in the New York State Supreme Court, New York County.