Investors who lost billions of dollars on mortgage bonds purchased before the financial crisis are finally starting to hold trustees of these deals accountable.
Judge Marcy S Friedman has been assigned to preside over the lawsuits filed earlier this month in the New York Supreme Court by RMBS investors against six trustees, according to report published by Barclays.
In the lawsuit, the investors allege that trustees breached their duty to the bondholders by not forcing the lenders to repurchase loans that were in breach of rep and warranty.
The securitization investors, led by BlackRock and PIMCO, target trustees that include: U.S. Bank, Deutsche Bank, Wells Fargo, HSBC, Bank of New York Mellon and Citibank.
“Investors’ argue that the trustees were aware of the existence of these breaches due to the pervasive evidence of systemic abuses and that the trustees were conflicted as they had been appointed by the issuers and they often also had stakes in the servicers for the deals,” Barclays stated in the report.
The lawsuit does not specify any amount for the damages. It also does not address bonds covered in other settlements, including those with Bank of America and JPMorgan.
“There have been indications in the past that such a lawsuit against the trustees could emerge once the New York State Appellate Court in December ruled that a six-year statute of limitations on the right to sue over rep and warranty breaches began when the alleged violation occurred, thereby limiting the put-back claims investors could pursue against the lender,” the report stated.
The investors who's put-back claims were limited by the Appellate Court have now appealed to the New York's highest court, which is expected to rule shortly on whether or not they can proceed with their claims.
In the table below, Barclays lists the number of RMBS trusts, along with the total balance of those trusts at the time of issuance, that is included in the litigation for each trustee.